Chinese stock pickers reshape Xi’s ‘common prosperity’ portfolios

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Investors look at an electronic board displaying stock information at a brokerage house in Shanghai, China, March 7, 2016. REUTERS / Aly Song

SHANGHAI, Nov. 2 (Reuters) – Chinese stock investors swap big names in tech for “little giants” and luxury brands for mass market companies, in a bid to cash in on “common prosperity plan “of President Xi Jinping for the economy.

The intention behind Xi’s campaign is to narrow the gap between the rich and the poor in the world’s second-largest economy.

But early policy measures rocked the markets as authorities introduced heavy new regulations on sectors such as tech, real estate and private prices, pushing shares in those sectors down.

While some active fund managers have fled China for the time being, others see opportunities in an economy targeting a larger and richer middle class.

Chinese policymakers “are discussing how to move from a pear-shaped economy, which is heavy from the bottom, light from the top, to an olive shape,” said Ronald Chan, head of actions for the Asia in Hong Kong at Manulife Investment Management. . “They are talking about how to share the cake in the future.”

“Common prosperity” also embodies China’s desire to be self-sufficient in technology and energy and to see the industry move up the value chain, said Chan, who has bought out Chinese energy companies. solar while avoiding luxury spirits brands.

Manulife’s Greater China funds have also reduced their holdings in tech giants such as Alibaba (9988.HK) and Tencent (0700.HK) over the past year, according to public information.

While it is difficult to estimate the magnitude of overall investment swings – especially as passively managed funds continue to seek heavyweights in stock indexes – the market moves have been abrupt.

China’s new energy index (.CSI000941) has jumped more than 70% this year, while the real estate sector (.CSI000006) is down more than 10%.

Among technology companies, those that offer “hard” products and components have outperformed “soft technologies” such as online vendors.

The KraneShares CSI China Internet ETF has plunged nearly 40% so far this year, while Chinese start-up ChiNext (.CHINEXTC) is up 13% and the Shanghai STAR market, which contains a lot of material, hardly budged.

“We have seen a lot of very extreme feelings about China. Does it come down to Maoism? Is it investable?” said William Sterling, global strategist at GW&K Investment Management, which invests in emerging markets, including China.

“It seems very, very unlikely that even with these new policy initiatives, the government will want to throw away the dynamism of the economy that the country’s capitalist engine has created.”

The pound is betting that Chinese consumer stocks will benefit from a growing middle class, but is avoiding real estate companies and related sectors such as cement and steel.

Winners and losers of the Chinese “Common Prosperity” initiative

DIVERGENT FORTUNES

Goldman Sachs has selected 50 “common prosperity” stocks from sectors such as green and renewable energy, hard technologies, high-end manufacturing and mass-consumption yet unique brands.

Its list includes local brands such as Xiaomi (1810.HK) and Li Ning (2331.HK), chipmakers Will Semiconductor (603501.SS) and Hua Hong Semiconductor (1347.HK), as well as companies from green energy LONGI Green Energy. (601012.SS) and Xinyi Solar (0968.HK).

Goldman advises investors to avoid sectors vulnerable to regulatory headwinds, including luxury consumption, data-intensive soft technologies, as well as education, real estate, media and entertainment.

Investors are already crowding into electric vehicles and chipmakers.

The China Universal CSI New Energy Vehicle Industry Index ETF saw its assets under management (AUM) nearly triple to 9 billion yuan ($ 1.41 billion) this year, while the Guotai CES China Semiconductor Chips ETF has almost doubled its AUM.

Societe Generale has a “common prosperity” basket of 30 stocks, which includes consumer companies such as China Tourism (601888.SS), Anta Sports (2020.HK) and Gree Electric (000651.SZ), as well as technology companies including Luxshare. Precision (002475.SZ) and Nari Technology (600406.SS).

In the medium term, “common prosperity” will improve the purchasing power of the lower-middle-income group in China, thereby benefiting the basic consumption and service sectors, including tourism, catering and health care. affordable healthcare, said Caro Liao, Chinese economist at the bond fund giant. PIMCO.

“In the long term, a properly regulated business environment is likely to benefit all investors, reducing system vulnerabilities and ensuring a sustainable growth path. “

Chinese small caps outperform large caps this year

($ 1 = 6.3999 yuan Chinese renminbi)

Reporting by Samuel Shen Additional reporting by Vidya Ranganathan in Singapore Editing by Lincoln Feast.

Our Standards: The Thomson Reuters Trust Principles.

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