Value Partners sees the upside potential in export stocks for two reasons.
The first one is general investor preference for high-dividend A-shares.
“With China’s bond yield and interest rates gradually trending lower, this will further limit investment opportunities that can offer attractive returns in a low-risk manner,” the Hong Kong-based fund house said in a 2017 forecast report.
Another factor to consider when looking at exporters is the depreciation of yuan.
“As the decline in the RMB was mainly caused by the strength of the US dollar, the outlook for the RMB will depend on whether the greenback can maintain its strength during Trump’s administration.
“To hedge against the currency risk of RMB, investors can consider investing in leading exporters, high-dividend stocks and banking stocks in Hong Kong,” the firm noted.
Kai-kong Chay, senior portfolio manager of greater China equities at Manulife Asset Management, said although his portfolio does not have big exposure to Chinese exporters, the valuations of these companies look more attractive now than in 2016.
“Some export companies have reflected the potential impact of trade policies in the stock price, and some might also benefit from a weakening RMB. So the outlook is more positive,” he said.
Europe, instead of the US, is China’s biggest export destination, he noted.
Offshore factories
Matthews Asia’s portfolio manager Sherwood Zhang disagrees on the benefits of a weak RMB.
“A depreciating RMB helps very little the competitiveness of Chinese goods in global markets. It actually might increase a companies’ financial expense if they borrowed heavily in USD or HKD in the past,” he said.
Chinese companies with existing manufacturing facilities outside of China, or to be more specific in the US, would likely perform better if US trade policy changes significantly under the Trump administration, Zhang continued.
“Losers would be export companies that have not diversified outside of China, and continue to count US as their most significant market. Of course this all depends on the policies of a future Trump administration.”
Allianz Global Investors’ Anthony Wong, portfolio manager of the Allianz China A-Shares Fund, concurred.
“Some sectors might be affected but we believe the real impact will be manageable.” For instance, there can be a scenario with the US adpoting trade policies that help certain sectors domestically which are not heavily exported from China — a win-win situation for both nations, he explained.
“But then there will be a lot of political noise,” he noted, which can drag down share prices initially with or without affecting the earnings.
