From Bridgewater Associates to BlackRock and Franklin Templeton, some of the world's biggest stock investors have one thing in common when it comes to China. Valuations are cheap again to get back into the market.
Bridgewater, the world's biggest hedge fund with US$220 billion of assets, ploughed some US$400 million into US-listed Chinese stocks in the third quarter, the Post estimated based on its 13F filing. It held positions in 45 mostly tech-related stocks valued at US$1.7 billion.
BlackRock, with US$9 trillion of assets, has been tactically bullish on the market since September, suggesting an easing in monetary, fiscal and regulatory policies is needed to revive growth. Templeton, with US$1.55 trillion assets, said prices of internet-related stocks have reflected the impact of regulatory backlash.
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"If you believe in the China story in the long term, the phase we are at now is an opportune time to build out a portfolio of assets in China that will be a winner," said Manraj Sekhon, Templeton's Singapore-based chief investment officer overseeing its emerging-market equity group. "It is very clear that the Chinese authorities are still focused on growth and are not going to isolate the private sector."
The chorus has grown louder even as losses multiplied. The MSCI China Index has tumbled 30 per cent from its peak in mid-February, erasing US$14 trillion of value along the way. Weak earnings have rattled investors, triggering multiple cuts in the price targets of the two biggest index members, Alibaba Group Holding and Tencent Holdings.
The 739-member index trades at an average price-earnings multiple of 12.85 times based on 2022 earnings, the cheapest since the market's last big crash in 2015, according to Bloomberg data. Dividends are forecast to yield the highest in four years.
So far, the bullish sentiment has not quite paid off, with a new round of selldown over the past two weeks. Alibaba, the owner of this newspaper, hit an all-time low in Hong Kong.
"The high-growth period of China's tech sector is gone forever now. So is the case of Alibaba, whose growth was fuelled by monopoly," said Dai Ming, a fund manager at Huichen Asset Management in Shanghai. "The government has a new 'common prosperity' goal, which may take years to achieve. It doesn't make sense to talk about the end of regulatory crackdown."
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It's premature to upgrade offshore Chinese equities, which have underperformed their emerging-market peers this year by the widest margin on record, Morgan Stanley said on November 14. Sima Jing, China strategist at Montreal-based BCA Research, said a turnaround in the economy and stocks may come later than investors are betting on.
"Most investors are optimistic about the outlook for the next six to 12 months," she said in a report on November 24, citing clients in North America. While policy tone recently pivoted to pro-growth bias, "existing easing measures will not offset the deceleration in both credit growth and domestic demand", she added.
Ray Dalio, billionaire investor and founder of Bridgewater Associates, is a China market optimist. Photo: Bloomberg alt=Ray Dalio, billionaire investor and founder of Bridgewater Associates, is a China market optimist. Photo: Bloomberg>
Even so, China bull Ray Dalio has continued to rebuild Bridgewater's portfolio of Chinese stocks despite market setbacks in the second and third quarters. Its All Weather China vehicle, designed to generate a high return-to-risk ratio and to maximise wealth over time, has doubled its assets to US$5.44 billion from a year earlier.
Cynthia Chen, a money manager for Asia ex-Japan equities at PineBridge Investments, said the long-term case for Chinese equities remains intact, particularly for investors with the patience and flexibility to position across the opportunity set.
"We see potential to accumulate industry-leading large caps with solid fundamentals at cheaper valuations," she wrote in a market outlook report on November 15. "The recent correction in offshore China stocks has created some buying opportunities for specific companies, including tech companies."
The 30-member Hang Seng Tech Index trades at an average price-earnings of 32.6 times one-year forward earnings, according to Bloomberg data, down from 46.2 times at the peak in February.
"In the short term, Chinese tech stocks face a lot of pressure, but certain valuations are starting to get interesting and we are starting to get more optimistic selectively," said Ernest Yeung, who manages emerging markets equity strategy in Hong Kong at T. Rowe Price, which manages US$1.7 trillion globally. "Regulation is well-discussed and understood."
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.