Investors may be wary given the big falls in Chinese stock markets last week, but they could be missing some “very attractive” opportunities by shying away, says Nikko Asset Management.
Speaking to InvestorDaily, Nikko Asset Management head of Asian equity Peter Sartori said investors were being understandably cautious due to the ongoing turmoil in Chinese financial markets.
“That’s fair enough, because growth is slowing and the economy is going through a major transition,” Mr Sartori said.
But while the transition will be a “bumpy ride”, investors are failing to give China the “benefit of the doubt” over the longer term, he said.
“There are some very good Chinese companies that are trading at valuations that we think are attractive.”
There is a consensus view on China that economic growth is slowing, he said – which Nikko agrees with.
“At this stage in China’s economic development, the economy should be slowing – it shouldn’t be growing as fast as it has done in the last three decades.
“But we also think that in times like this you should be taking a long-term view and identifying the best Chinese companies taking a 5 to 10-year view on getting an exposure to them,” he said.
While there are parts of the Chinese market Nikko avoids (‘old China’), investors should be focusing on the newer, more innovative companies.
“In this nervousness and the recent sell-off we’ve had in Chinese equities, a lot of these new Chinese companies have been hit as well. So we think there’s a real opportunity to get exposure to those companies,” Mr Sartori said.
In addition, there is a difference between the China that is portrayed in ‘headlines’ (ie. the A share market) and the companies Nikko is targeting, he said.
“We’ve been telling our clients and our view has been that there’s no need to be getting exposure to A shares at the moment,” Mr Sartori said.
“It’s the Chinese companies listed in Hong Kong where we’re seeing the real opportunity.
“From a valuation point of view it’s the Chinese companies listed in Hong Kong that are trading at compelling valuation levels,” he said.
Magellan chairman and CIO Hamish Douglass has said he’s not afraid of missing out on a “short-term market rally” and that mutant virus...