All eyes are now on China, with one fund manager optimistic about the country and saying investors should get involved no matter what “bazooka” stimulus measures are taken. Steven Glass, managing director and analyst at Sydney-based Pella Funds Management, said the Chinese market would continue to improve regardless of any huge stimulus measures announced. Starting from September 24, China announced a series of stimulus measures aimed at boosting the Chinese economy. However, investors were disappointed when a briefing from the National Development and Reform Commission failed to announce any major new measures when markets reopened after the Golden Week holiday on Tuesday. After the stimulus policy was announced on September 24, the Mainland CSI 300 Index rose by nearly 16%, its best week since 2008. The blue-chip index is up nearly 20% so far this year. The focus has now shifted to Saturday, when the country’s finance ministry is expected to hold a fiscal policy press conference, with expectations for further stimulus high. However, Glass said the gradual steps taken by the government were enough to boost investor confidence in the country and prompt continued capital inflows into the market. He said that the main reason for the poor performance of the Chinese market in recent years is the government’s crackdown on companies starting in 2020. At the same time, research by HSBC shows that from 2021 to April this year, stock sales in mainland China and Hong Kong have a market value of US$4.8 trillion. But Glass noted that the Chinese government has not taken any “negative” steps since around September 2023. The fund manager oversees the Pella Global Generations Fund, a long-only equity fund that invests in 30-50 high cash flow-generating companies with good ESG credentials. His optimism on China contrasts with the cautious stance of some other investors and analysts. For example, Stephen Roach, former chief economist at Morgan Stanley, warned investors not to get too obsessed with the rise in the Chinese market. “Starting point” Glass said Midea Group, which manufactures home appliances and industrial robots, is a good “starting point” for those who want to invest in China. “It’s cheap, well-managed and has a very strong balance sheet,” he said, adding that the company would benefit from “increased consumer spending … and an improving housing market.” Midea said in 2016 It acquired German robotics supplier Kuka, which Glass sees as a positive because industrial robots are “a very good place to invest… (as a major beneficiary of artificial intelligence).” Midea’s shares are listed on the Shenzhen Stock Exchange and included in the Reliant Quantitative China Stock ETF (weighting 2.9%). Midea also listed in Hong Kong on September 17, the exchange’s largest debut since February 2021. All 26 analysts covering the stock have a buy or overweight rating, with an average price target of HK$92.39 ($11.89), according to FactSet data. This leaves the stock with about 9% potential upside. Glass said investors with a higher risk tolerance for investing in Chinese real estate could consider Country Garden Services Holdings, the property management arm of real estate company Country Garden. It was spun off and listed on the Hong Kong Stock Exchange in June 2018, and Glass believes “its performance has been absolutely amazing (and) could potentially rise 5 to 10 times” (appreciating in value up to 10 times). The stock also trades in the United States under an American depositary receipt under the ticker symbol CTRGF. Its Hong Kong shares have been relatively flat so far this year. Of the 19 analysts covering the stock, seven have buy or overweight ratings, six have hold ratings and six have sell or underweight ratings, according to FactSet data. Analysts’ average price target is HK$4.49, which gives the stock a potential downside of nearly 30% from its current price of about HK$6.40.
