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Unlocking Investment Opportunities: Alibaba and Other Chinese Stocks Present Irresistible Bargains

Alibaba, Bargains, Chinese, Investment, Irresistible, Opportunities, Present, Stocks, Unlocking

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Consumer-oriented companies like Alibaba could be a buying opportunity for investors.

Wang Zhao/AFP via Getty Images

Value managers routinely venture into markets that others are fleeing, and right now that makes China a natural destination.

Veteran bargain hunters admit China’s economic growth prospects look uncertain, and that policy makers may continue to stumble. But they calculate that Beijing will keep trying to stabilize the economy—enough to create a tactical opportunity in pockets of the market.

Investors have fled China as the recovery following three years of strict Covid restrictions, erratic policy steps and crackdown on its property market along with national champions like Internet giant

Alibaba Group Holding

(ticker: BABA) rattled confidence—among households, businesses and investors.

With the U.S. and China entering an even more tense relationship, many money managers have reined in their allocations to China and rolled out emerging markets ex-China funds for skittish clients.

But for some emerging market veterans familiar with navigating erratic policy makers in developing markets, the cheap valuations in parts of the Chinese stock market are a draw. Arjun Divecha, founder of GMO Emerging Markets Equity, is still cautious about China but has become less worried about the country’s sluggish recovery from Covid.

“That normalization of demand will happen, and there’s some evidence it is starting to happen if you look at car sales,” he says. “The government has been slow to reflate the economy for good reasons [due to its debt concerns] but I do think they will eventually succeed.”

BCA Research analysts highlighted glimpses of stabilization in the economy, with China’s credit growth improving in August and deflationary pressures seen earlier in the summer easing, with consumer prices up 0.1% versus the earlier year, better than the 0.3% decline in July.

The BCA analysts are looking for more proactive policy measures that will create significant economic improvement before becoming less bearish and rethinking their underweight recommendation to clients for Chinese assets.

But Louis Lau, director of investments at Brandes Investment Partners, tells Barron’s via email that he sees several potential avenues to improve investor sentiment, and he’s already looking for opportunities in internet stocks, life insurers, sportswear makers and the supply chain for solar.

For Henry Mallari-D’Auria, Ariel’s chief investment officer of global and emerging markets equities, the focus is on consumer-oriented companies he thinks will see faster growth in coming years, in part from Beijing’s efforts to revive confidence among households.

While Mallari-D’Auria sees some signs of stabilization in property prices from policy makers’ gradual efforts in recent weeks as laying the groundwork for repairing consumer sentiment. A couple of quarters of more stable property prices, as well as income growth and stronger auto sales would build the case consumer confidence is improving.


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