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Time to invest in China? The pros weigh in on what sectors and stocks to play right now

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A decline in exports, a slowdown in consumer spending and a prolonged slump in the property sector has weighed on the Chinese economy this year, pushing several analysts to turn bearish on the Asian powerhouse. Chinese stocks too have done poorly. Hong Kong’s Hang Seng index has fallen around 12% year-to-date, while the Shenzhen Component is down 10%. Many emerging market funds have since reduced their allocations on China and shifted their weight to other markets such as Taiwan, India, South Korea, Brazil and Mexico in anticipation of better valuations and growth, according to Redmond Wong, a market strategist at investment firm Saxo. However, he believes there are several opportunities in China that investors can explore. ‘High confidence in the tradable value’ While the Chinese economy “is not very strong,” Wong has “high confidence in the tradable value,” of Chinese stocks. “In other words, a rally that is large enough in magnitude to do some trades but not yet persistent and pervasive enough to be a bull market,” he told CNBC Pro. “If you look at China’s quarterly annualized GDP growth, the first quarter was good but the second quarter was very bad even though the absolute growth figure shows growth momentum. Nonetheless, Q3 GDP reaccelerated in a quarterly seasonally adjusted annualized basis,” he said. “The markets are now headed for a correction which means there is a possibility that China can outperform in the next few months.” China posted 4.9% growth in the July to September quarter from a year earlier . This beat the 4.6% growth penciled by economists and follows the 6.3% printed in the April to June quarter and 4.5% for the January to March quarter. On a quarterly seasonally annualized basis, China’s third-quarter growth regained mild momentum with a 5.3% rise, compared to 2% in the second quarter, Wong calculated based on data from the National Bureau of Statistics. Looking ahead, he is adopting a “wait-and-see approach,” but remains hopeful that the economy will grow in the next year, on the back of productivity enhancements across key sectors. Analysts from Goldman Sachs echo Wong’s sentiments. “Our macro outlook for China in 2024 continues to carry a strong flavor of idiosyncrasy in the global context,” they wrote in a Nov. 12 research note to investors. “Chinese growth is slowing alongside most developed market and emerging market economies, but domestic inflationary pressures are mild and low in absolute terms,” they noted, adding GDP growth is expected to slow to 4.8% in 2024 from 5.3% this year. Still, they expect the MSCI China and CSI300 indexes to rise 12% and 16% in 2024, following a 10% growth in earnings per share and moderate valuation gains. Stocks to play Goldman is overweight on several sectors including online retail, media/entertainment, tech hardware, health care equipment and services and food & beverage. “Consumer sectors, particularly those that are exposed to mass-market consumption and under-penetrated sub-categories, look well-placed fundamentally. Tech Hardware, which has seen close to 40% earnings cut in the past 2 years, could reverse the downtrend in 2024 on global restocking and specific product cycles,” the bank’s analysts wrote. They also like the TMT (technology, media and telecom) sector amid expectations of a 13% growth in earnings next year, following further cost optimization and monetization enhancements. Stocks on Goldman’s conviction list include internet tech giants Alibaba and Baidu as well as hotel and casino operator Galaxy Entertainment , mining company Zijin Mining , alcohol manufacturer and seller China Resources Beer and retailer Miniso Group . Other stocks the investment bank sees outperforming “as the China growth story evolves” include internet services provider NetEase , technology hardware manufacturer Xiaomi , and manufacturing conglomerate BYD . China-focused ETFs Elsewhere, Saxo’s Wong has his eye on the new infrastructure (such as 5G technology), industrial technology and agricultural technology themes. “These are sectors that are growing in China – and can provide growth opportunities – especially if investors buy ETFs (exchange traded funds) in the theme to get more exposure to the entire ecosystem,” he explained. Some A-share ETFs investors can buy via the Hong Kong Exchange to play the themes include: the Fullgoal CSI Agriculture ETF, new infrastructure-focused ChinaAMC CSI 5G Communications ETF and the Hwabao CSI Technology Leading Enterprises ETF, which captures technology and innovation companies. — CNBC’s Michael Bloom and Clement Tan contributed to this report.

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