The recent quarterly reports of major Chinese companies have highlighted the need for stock pickers in the local market. According to Lorraine Tan, director of Asia equity research at Morningstar, the outperformance seen in certain companies is not a broad trend. Instead, it is specific to those companies with a more resilient product mix or market position. The overall trend seems to indicate weakness reflecting macroeconomic factors, with cautious guidance being provided by many companies.
Both Alibaba and Tencent have reported a significant increase in capital expenditures compared to the previous year. Alibaba’s expenditures reached $1.66 billion, while Tencent’s were at 8.73 billion yuan ($1.22 billion) for the quarter ending in June. This observation by Morgan Stanley China equity strategist Laura Wang and her team suggests a potential turnaround in domestic demand, especially for companies like GDS Holdings.
GDS Holdings, with its significant first mover advantage in overseas expansion, has caught the attention of strategists like Laura Wang. The company’s land agreement in Malaysia has further solidified its position in the market. Similarly, Temu parent PDD Holdings is also seeing growing exposure to overseas growth, leading to increased interest from investors.
The CoreValues Alpha Greater China Growth ETF, which holds companies like PDD and Tencent, aims to provide a more active approach to investing in Chinese stocks. The ETF, managed by Ben Harburg, focuses on trading Chinese public markets based on timely information and analysis. Harburg emphasizes the complexity of the Chinese market and the need for active management to navigate it successfully.
Despite efforts to pick outperforming stocks, Chinese stocks in both Hong Kong and the mainland have struggled to recover significantly since the pandemic. The uncertainty surrounding growth and policy has hindered the market’s progress. Harburg does not foresee Beijing stimulating growth and instead anticipates a market correction triggered by a drop in the U.S. stock market.
The latest quarterly reports of major Chinese companies highlight the importance of stock picking in a challenging market environment. Companies like Alibaba, Tencent, GDS Holdings, and PDD Holdings are showing resilience and potential for growth, but investors need to carefully analyze individual companies to make informed investment decisions. The CoreValues Alpha Greater China Growth ETF offers an active approach to trading Chinese stocks, aiming to outperform passive ETFs. Despite the struggles faced by Chinese stocks, opportunities for growth remain, especially in overseas expansion. Investors should stay informed and vigilant to navigate the complex landscape of the Chinese market successfully.
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