China Strategy

Domestic growth and tech stocks are less sensitive to commodity cost inflation





WEEKLY INVESTMENT IDEAS - 20220411 China Strategy FCN
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Even with the oversold rebound on 16 Mar 22, Chinese equities still trade at an attractive 11x 12-month forward PE. Easing COVID-19 disruptions and kicking in reflationary policies will continue to lend support this quarter. We recommend exposure to blue chips and beneficiaries of policy easing; sector-wise, these would be the internet, commodities, and renewables. (View UOBKH Research report: China Strategy: What's In The Price?)



Confidence booster as China looks to domestic growth. Vice Premier Liu waved off expectations on macro policy stance, property risks, American Depositary Receipts (ADR), and platform company regulations on 16 Mar 2022. Though there have been delays in earlier reflationary efforts, we expect an immediate push to ramp up domestic growth, in view of the rising external headwinds. Various announcements of property sector policy relaxation, news of China exploring ways it can “live with COVID-19” and President Xi highlighting the need to minimize the impact of COVID-19 on the economy and society point to a greater urgency to safeguard the growth momentum.


Strategy. With valuations still at attractive levels, we recommend sticking to the benchmark big caps and buying into domestically focused themes with minimal exposure to Europe, and less sensitive to commodity price hikes. Our key stock picks are Alibaba (9988 HK), BYD (1211 HK), Ganfeng Lithium (1772 HK), JD (9618 HK), Li Ning (2331 HK), Tencent (700 HK), and Xinyi Solar (968 HK).