In the recent quarterly reports from major Chinese companies, it is clear that the local market is presenting challenges for stock pickers. Lorraine Tan, director of Asia equity research at Morningstar, highlighted that there has been outperformance in certain companies, but overall, there is weakness reflecting macroeconomic trends. Many companies are providing cautious guidance, indicating a sense of uncertainty in the market. This means that investors need to be strategic and selective in their approach to Chinese stocks.
Tan pointed out that the companies that have outperformed in the market have shown resilience through a strong mix of products or business market positions. This resilience allows them to navigate challenges more effectively and potentially outperform their competitors. Companies like Alibaba and Tencent, which reported doubled capital expenditures in the latest quarter, are showcasing this resilience and adaptability in the face of market pressures.
Chinese data center company GDS Holdings and e-commerce platform PDD Holdings are two examples of companies with growing exposure to overseas markets. GDS Holdings, in particular, has been noted for its first mover advantage in overseas expansion, with promising developments like a land agreement in Malaysia. This international expansion could be a key driver of growth and profitability for Chinese companies in the future.
The CoreValues Alpha Greater China Growth ETF (CGRO) provides insight into the performance of Chinese stocks. With a focus on criteria that prioritize economic interests and values, the ETF holds a portfolio of Chinese companies. However, the market has seen challenges, with the CGRO ETF down year to date compared to other ETFs like KraneShares CSI China Internet ETF (KWEB). This indicates the need for careful consideration and active management in the Chinese stock market.
Despite the potential for growth, Chinese stocks are facing uncertainty and challenges. The ongoing effects of the pandemic, combined with economic and policy uncertainties, have created a difficult environment for investors. Ben Harburg, founder of CoreValues Alpha, expressed skepticism about Beijing’s ability to stimulate growth and predicted that a potential catalyst for Chinese stocks could come from a correction in the U.S. stock market. This highlights the interconnected nature of global markets and the impact they have on each other.
Chinese companies are navigating a complex and challenging stock market environment. Resilience, international expansion, and strategic management are key factors driving success in the face of macroeconomic trends and policy uncertainties. Investors must be vigilant and selective in their approach to Chinese stocks, considering factors like company performance, overseas opportunities, and market trends for long-term success.