Overview

According to Abrdn’s Xin-Yao Ng, a Singapore-based investment manager of Asian equities, the high run-up of India stocks has made China relatively attractive. Ng believes there is significant value in China, but the timing of the economy’s rebound remains uncertain.

Slow Growth and Stock Decline

Official data indicates that China’s growth has slowed compared to previous decades. Additionally, the Chinese stock market has experienced a decline in recent months, with the Shanghai Composite trading close to pandemic lows. Concerns about the economy and lack of stimulus have kept investors cautious.

Importance of Property Sector

In Ng’s view, the key indicator for the Chinese market is the property sector, specifically transaction volume and prices. He believes that consumer confidence and household financial security will improve once the property sector stabilizes. However, the timing of this stabilization is uncertain, and Ng does not anticipate significant government stimulus in the coming months.

Investment Strategy

To navigate the current situation, Ng is focusing on Chinese stocks with higher free cash flow yields, particularly those with share buybacks. He notes that Chinese stocks provide a free cash flow yield of over 10%, while the yield for Indian stocks is only 1% to 2%. While Abrdn is overweight on India and underweight on China overall, Ng states that the firm is selectively shifting some investments from India to China and thematic plays.

Selective Buying Opportunities

Ng highlights sportswear and healthcare stocks as areas of selective buying. He believes outdoor activities have gained popularity in China, benefiting companies like Nike and those owned by Anta. In the healthcare sector, Ng expects companies like Mindray to emerge stronger from China’s anti-corruption campaign, along with a growing export business as a hedge.

Export-oriented Names and Economic Outlook

Abrdn is also beginning to look at some export-oriented names, considering the expectation of a soft landing for the U.S. economy, which may create higher demand for Chinese goods than anticipated. China’s exports grew faster than expected in December, but experienced an annual decline for the first time since 2016. However, Nomura’s leading index on Asian exports suggests that Asian exports could grow as soon as February.

Concerns and Confidence

Despite potential opportunities, concerns such as geopolitics and an aging population continue to pose challenges to China’s economy. Ng acknowledges that investors and companies desire a significant stimulus, but the government’s current stance suggests a different approach. In Ng’s opinion, an over-easing approach is necessary to break the downward spiral of confidence during a downturn.