Top-Performing Fund Favors China Stocks as Bearish Tide Grows

2023-06-07 13:26

The bearish calls against Chinese equities are growing, but one top-performing fund says any further weakness is a

The bearish calls against Chinese equities are growing, but one top-performing fund says any further weakness is a chance to buy.

Chinese firms offer “pretty good value and earnings in some areas,” with companies such as Alibaba Group Holding Ltd. and Tencent Holdings Ltd. focused on delivering shareholder returns, said Tony Roberts, who manages the Invesco Pacific Fund (UK).

“You have just a general discount because US-China tensions are very high at the moment, so I think that also gives us an opportunity in China,” Roberts said in an interview. China’s big tech companies such as Alibaba and Tencent are “just too cheap.”

Roberts’ stance sets him apart from bears such as Morgan Stanley and Goldman Sachs Group Inc. which have cut targets for Chinese stocks on concerns about the earnings and currency outlook. Hopes are mounting that policy makers will deliver more stimulus to reverse the tide, after authorities asked the nation’s biggest banks to lower deposit rates to stimulate growth.

The Invesco fund has been overweight Chinese equities since January 2022, with the stance reflecting its position in both China and Hong Kong shares, according to Roberts. The vehicle increased its holdings in Alibaba this year as the shares weakened, and the stock accounts for around 2.3% of its total holdings, he said.

Alibaba and Tencent “seem to have transitioned from growth stocks to value stocks,” said Roberts.

The Invesco fund has returned 8.9% over the past three years to beat 93% of its peers, according to data compiled by Bloomberg. It had £240.7 million ($299 million) of assets as of end-April, its factsheet showed.

AI Buzz

Roberts is counting on the buzz surrounding all things artificial intelligence to boost Alibaba and Tencent, after the firms moved to integrate the system into their products.

Valuations have also become more appealing, with Alibaba trading at 10 times book value and Tencent at 19 times, compared with 24 times for the Hang Seng Tech Index.

The Hang Seng Tech Index has fallen more than 5% this year, trailing the Nasdaq 100’s gain of 33% as investors soured on Chinese equities. A slowing recovery, geopolitical risks and a slump in the property sector have damped demand for China’s assets.

--With assistance from Jeanny Yu.