As China’s easing of COVID-19 restrictions starts to take shape, the focus of investors is increasingly shifting from frenzied stock bets to longer-term plays, such as consumer and healthcare shares.
Money managers are zeroing in on companies that are expected to benefit from a reopening-led economic recovery instead of travel and catering firms, whose shares have jumped sharply in the early days of the rally.
“With the trajectory of the economy set to be back on track, it is time to shift focus from stocks primed to jump on short-term changes,” Shenzhen Zhengyuan Investment Co (深圳正圓投資) fund manager Hua Tong (華通) said. “We can now afford to take the longer-term view to seek out opportunities — and the biggest unrealized opportunity is in the consumer sector.”
Photo: AFP
Recent updates from health authorities include allowing some low-risk COVID-19 cases to isolate at home and loosening curbs in select cities, with the official rhetoric on the disease also coalescing around a softer tone.
“The reopening trade will be led by consumption and healthcare in the coming months,” Snowball Wealth (雪球投資) fund manager Li Changmin (李昌民) said. “Guangzhou’s surprise reopening, even with its high case count, has fired the first shot, and this could expedite the timeline for ending COVID zero.”
Li expects a full reopening to occur before annual parliamentary meetings in March next year.
Photo: Reuters
“Life returning to normal would mostly benefit the blue-chip names which have suffered huge valuation discounts, whereas the upside for travel and airlines stocks has been mostly priced in,” he said.
The CSI 300 Index’s consumer staples subindex was trading close to 22 times its one-year forward earnings, compared with an average of almost 27 times over the past three years.
The initial leg of the reopening trade has seen more volatile stocks lead the charge. Shares linked to the travel, catering and pharmaceutical industries have been among the prime beneficiaries.
More broadly, the Hang Seng China Enterprises Index soared 29 percent in Hong Kong last month, the most since 2003.
The benchmark CSI 300 Index jumped almost 10 percent in its best performance since July 2020.
The rally has eased since, with the gauges little changed over two sessions this month.
Pegasus Fund Managers Ltd (東驥基金管理) managing director Paul Pong (龐寶林) favors consumer stocks such as automakers, which are expected to beat their peers when spending picks up.
“Big tech firms that have been laggards, like Alibaba (阿里巴巴) and Tencent (騰訊), will also outperform as they have high beta and benefit directly from a consumption recovery,” Pong said.
However, some investors still see room for a further rally in the traditional cohort of reopening plays.
BNP Paribas SA Asian equity strategist Manishi Raychaudhuri said that stocks related to tourism, restaurant chains, e-commerce, Macau gaming and retail-focused real-estate investment trusts might notch up more gains.
“Other Asian markets, like Thailand, also offer interesting exposures to this theme — through airports and hotel chain stocks,” he said.
Overall, an increasing number of investors are setting their sights on the longer-term play even though China’s exit from its “zero COVID-19” policy might be fraught with challenges.
“Reversing course is going to be like walking on a tightrope, full of adjustments in both directions in the search for the most desirable solution,” said Liu Xiaodong (劉小東), a partner at Shanghai Power Asset Management Co (上海樸沃資產管理).
“This means that many of the reopening plays may be prone to flip-flop and end up moving horizontally,” Liu said. “If anything, I think healthcare does have potential, whichever way the tide turns in the short term, people are going to need treatment.”
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