David Chao, Invesco
Although some people hold the view that China is uninvestable right now, Invesco doesn’t believe that is the case, Kristina Hooper, chief global market strategist at Invesco, told a webinar this week.
“We are really excited about China, and its tech sector looks very attractive in value,” Hooper said.
She believes that the recent regulatory measures have been priced into stock prices to “a significant degree”, and in many cases China tech stocks have been oversold.
But, investors have to be selective, because there are different sub-sectors within the tech sector, David Chao, global market strategist of Asia Pacific (ex-Japan) at Invesco, said.
Certain sub-sectors have been in the headline news and under regulatory review, including internet platforms, social media, technology companies and video game companies, Chao explained.
“I think that we’re not out of the regulatory woods yet for those types of companies, but there are other technology companies,” he said, pointing to electric vehicles, alternative energy technology companies, high tech manufacturing technology companies. These sub-sectors enjoy policy support, and also investor interest has shifted towards these kind of tech companies.
Growth bright spots
Nevertheless, China’s economic slowdown has been very much in the front of investors’ concerns, especially as retail sales and household demand have not returned to pre-pandemic levels, noted Chao.
This is the result of a confluence of factors, including the Covid restrictions, regulatory pressures on certain sectors, and the weakness in the property market. This will continue to subdue consumer spending and confidence, according to Chao.
However, bright spots have started to appear recently, he said, pointing out that some of the larger Chinese companies and multinational corporations have delivered robust earnings.
China’s manufacturing purchasing managers index for November expanded to above 50, which was the first time in a couple of months. Invesco sees it as a good indication that both global demand and Chinese production remains healthy.
In addition, there is strong international demand for Chinese electronic components and products.
Even though that China’s economy will see some additional head winds over the next couple of quarters, Invesco thinks that it’s in this mid cycle of slowdown.
“If you think about a camel with two humps, we’re currently in this downward trajectory. Perhaps we haven’t hit the bottom of economic growth slowdown yet, but we will see a reacceleration later in 2022,” Chao said.
