The remarks come as Evergrande, China’s second-largest property developer by sales, is on the verge of bankruptcy due to a $300 billion debt.
Investors are concerned that the fallout will spread to other financial markets. During the Asia trading session on Monday, Hong Kong equities fell sharply, while US stocks fell sharply.
El-Erian said that the Evergrande development, combined with headlines this year about Chinese regulators cracking down on industries ranging from technology to gaming, is “shaking this notion that China is an investable market.”
“What is going on in China is shaking key tenants of this global investment theme… which has been that the government will always support the financial sector.” It isn’t,” El-Erian clarified.
When asked if he believes the Evergrande crisis has harmed investor confidence in China as an investable market for the time being or in the long run, El-Erian said the upheaval is likely to be temporary and represents a transition period for investors.
“People are talking about China having a ‘Lehman moment.’ “I don’t think we’re there yet,” El-Erian said, referring to the massive fallout across financial markets following the 2008 collapse of Lehman Brothers.
Best stocks according to Sarat Sethi
Douglas C. Lane & Associates portfolio manager said that he is ready to buy more stocks for his clients even though he is unsure when the stock market’s slide will end.
“It’s almost impossible to time it,” he says, but during market downturns, investors should look for high-quality companies.
Constellation Brands and Coca-Cola in the consumer staples sector, and Honeywell in the industrials sector, are among the high-quality names on Sethi’s list.
Those with solid growth and the ability to mitigate the impact of inflation should be prioritized by investors, he says.
“I believe you should concentrate on input costs and revenue growth. “Who will be able to increase their earnings despite higher input costs, and who will have higher demand in the next 12 to 24 months,” Sethi said.
He also stated that companies with low earnings multiples, such as General Motors and CVS, have a “higher margin of safety.” Professional investors and strategists have been concerned about the stock market’s high price-to-earnings ratio, but those cheaper stocks may be immune to a widespread multiple reduction, according to Sethi.
Constellation Brands and GM have actually increased in value this month, while the other stocks have declined in line with the broader market.
In terms of the macro picture, Sethi stated that market uncertainty about how China will respond to the Evergrande crisis is hurting markets, but that supportive stances from other governments will likely keep the sell-off in check.
Colgate-Palmolive gets upgraded
The note stated, “We continue to see CL positioning itself for better long-term growth and profitability by premiumizing the portfolio and bolstering the company’s overall brand-building muscle and digital capabilities.”
Colgate-Palmolive shares have fallen 10.9 percent since the end of December, indicating a significant underperformance this year. In addition, the stock has fallen 5.9 percent in the last three months, while rival Procter & Gamble’s stock has risen more than 9 percent.
According to Deutsche Bank, the stock has been harmed by rising cost pressures and weakness in international markets, but this appears to be priced in now.
“We see such factors largely discounted in CL’s recent underperformance, and sense (based on the volume of recent inquiry surrounding the name) that investors are looking for reasons to become more constructive,” the note stated.
The stock’s price target has been raised by $2 to $86 per share by Deutsche Bank. The target is 12.8 %.
Chip stocks
Semiconductor chips, which are used in everything from automobiles to smartphones, are currently in short supply.
“We expect new products and new end-market expansion to be key incremental growth drivers through cycles,” Goldman analysts led by Allen Chang wrote in a note to investors on September 13.
Several of Goldman’s “key stock ideas” are available to investors outside of China because they are listed on the New York or Hong Kong stock exchanges.
According to Goldman, Semiconductor Manufacturing International Corp and Hua Hong, both listed on the Hong Kong stock exchange, have “strong growth potential off a low base and strong local demand.” Both are foundries, which means they manufacture semiconductors for other companies. SMIC has a potential upside of 59 percent to Goldman’s price target, while Hua Hong has a potential upside of 37 percent.
Goldman estimates that new product development for semiconductor foundry United Microelectronics Corp will increase sales by 30% by 2025. UMC is listed on the NYSE and has a potential 65 percent upside to its 12-month price target.
Goldman Sachs has selected six Chinese chip stocks, some of which have a potential upside of more than 50%.
Morningstar reduces price targets for Macao casino stocks due to regulatory concerns.
According to Goldman, Nasdaq-listed ACM Research, which supplies chipmakers, is “rapidly” ramping up production of plating tools that add a thin layer of metal to a semiconductor, as well as launching new equipment that the company expects to increase its serviceable addressable market from $5 billion to $10 billion. According to Goldman, the stock’s 12-month price target could rise by 41%.
Goldman likes AAC Tech, a Hong Kong-listed smartphone component maker, for its “multiple components portfolio” for Android phones and “strong” shipments growth in camera lenses. The stock could rise by 60% to Goldman’s 12-month price target.
In a separate note issued earlier this month, Goldman raised its growth forecasts for TSMC and UMC and stated that both companies are expected to raise product prices.
Morgan Stanley is concerned about the market
In a note to clients, Chief U.S. Equity Strategist Mike Wilson stated that the market has reached a fork in the road with “fire” and “ice” directions, and it appears to be heading in the wrong direction.
“The ‘ice’ scenario is becoming more likely, and could result in a more destructive outcome — i.e. a 20%+ correction,” according to the note.
The market’s softness comes after an unusually long period of not seeing a pullback of at least 5% on Wall Street.
According to Morgan Stanley, factors that could prolong the market’s decline include downward earnings revisions, low consumer confidence, and poor readings from purchasing managers indexes. According to Wilson, the end of major pandemic relief programs could make the transition back to a more normalized economy more difficult than many expect.
“Given the extraordinary fiscal stimulus provided during this recession, we are concerned that the inevitable slowdown in growth will be far worse than currently anticipated. This is the ‘ice’ scenario, and it would most likely result in a larger-than-normal mid-cycle transition correction in the S&P500, i.e. 20%,” according to the note.
He believes the market will experience a “rolling correction” as it exits the economic rebound period that defined the spring and summer.
Morgan Stanley rates the economic-dependent consumer discretionary sector as underweight and recommends some of the more defensive plays.
“We continue to recommend a barbell of more defensively oriented quality (Healthcare and Staples) to protect against the ‘ice’ scenario while keeping a leg in Financials to participate in the ‘fire’ outcome as higher rates materialize,” according to the note.
Best low volatility, high-dividend stocks
The major averages fell on Monday as a result of a slew of troubling factors. The Federal Reserve meeting this week, which may contain hints about the central bank’s plans to taper bond purchases, and the Covid delta variant remain major concerns for investors. Concerns about potential tax increases, as well as weakness in China’s financial markets as a result of problems in the country’s real estate market, are also contributing to the selling pressure.
The S&P500 fell 2.2 percent, while the Nasdaq Composite fell 2.7 percent.
Safer stocks that pay large dividends could be a good choice for investors looking for yield in the midst of September’s market volatility.
Stocks that pay more than the benchmark’s 2% dividend yield. Based on an average of Wall Street analyst targets and more than 50% buy ratings, the stocks have more than 10% upside to their price targets.
The group’s constituents also have a three-year beta of less than 0.9, indicating that they are lower volatility stocks. Low beta stocks are less volatile than the broader market, which means they fall less than the market on a down day and vice versa.
AbbVie, the pharmaceutical company, has a 4.5 percent dividend yield. The company’s three-year beta is 0.7, which means that if the S&P500 falls 1%, AbbVie will only fall 0.7%.
Analysts predict that AbbVie will increase by more than 18% over the next year.
Alexandria Real Estate Equities and Prologis were also named. The yields on the stocks are 2.4 percent and 2.3 percent, respectively. Furthermore, Wall Street expects Alexandria Real Estate Equities to rise 12 percent and Prologis to rise nearly 11 percent over the next year.
McDonald’s pays a 2.3 percent dividend yield and has a beta of 0.6. Analysts expect the defensive stock to rise more than 10% over the next year.
Stocks in the healthcare industry Another two low-volatility stocks that Wall Street likes are Bristol-Myers Squibb and CVS Health. Bristol-Myers Squibb pays a 3% dividend yield, while CVS Health pays a 2.9 percent dividend yield. Analysts predict that Bristol-Myers Squibb will rise nearly 25% in the next year, while CVS Health will rise more than 12%.
The list also included AES Corp., Ameren Corp., Atmos Energy, Dominion Energy, Edison International, Everest Re Group, Evergy, Mondelez, and NiSource.
To be sure, these low-beta stocks will not produce as high returns if the market turns positive.
