China is ‘one of the best’ places to invest.
Alibaba, Baidu, and Meituan have all had a year to forget in the stock market.
Jian Shi Cortesi claims there is a “safer and more sustainable way” of maintaining an interest in China’s financial technology sector.
“We have traditional leading Chinese banks and insurance companies in our portfolio that are also leaders in fintech,” Cortesi explained.
“However, when we look at the company’s valuation, we believe it is barely pricing in the traditional banking and insurance businesses — and it is not giving any value to the fintech business. As a result, we see this as a much safer way to play fintech while capturing upside potential while also having downside protection,” she added.
Investing in Ping An Insurance and China Merchants Bank, Cortesi stated that the two companies are traditional insurance and banking players, but they are also technologically strong.
According to the fund manager, Ping An Insurance is “very good” at leveraging technology to grow its business. The Chinese insurer also has a stake in the Chinese fintech behemoth Lufax.
Meanwhile, according to Cortesi, China Merchants Bank has the potential to become a private banking leader and has had the “number one banking app” in China for years.
According to Cortesi, the internet sector is still one of the best places to invest in China.
Tighter regulatory scrutiny, on the other hand, will most likely limit revenue and earnings growth for technology companies in the short term, she added. She explained that this is because these companies will be more cautious about their business expansion and conduct.
“Over the long term, we don’t think it will change the growth trajectory of these companies,” Regulatory risks in China could undermine the investment case for tech behemoths , Baidu, JD.com, and Tencent.
She stated that the companies’ practices may be considered monopolistic. However, even if all of them were removed, the impact on the companies’ revenues or net income would be minimal, she explained.
“In our opinion, none of these companies really get their competitive edge (through) monopolistic practices,” she said.
The inflation factor
“The US equity playbook for inflation includes Value, cyclicals, inflation-protected dividend yield, and Energy and Materials, the two sectors most leveraged to inflation.” “However, be wary of long-term secular losers such as oil, brick-and-mortar retail, and other industries that are likely to face further disruption.”
During inflationary periods, large caps typically outperform small caps, and value outperforms growth, according to Bank of America.
One common strategy suggested by strategists for trading around inflation is to find companies with pricing power that can pass on price increases to their customers. In that note, Bank of America included a list of stocks with pricing power for inflation, including Exxon Mobil and Marathon Petroleum in the oil sector and Freeport-McMoRan and LyondellBasell in the materials sector.
Last month, UBS released a similar list that included several consumer-focused names such as Activision Blizzard, Coca-Cola, and O’Reilly Automotive.
In the note, UBS stated, “Our framework for identifying firms with the strongest and weakest pricing power is built around three pillars: (1) pricing power, (2) margin momentum, and (3) input cost exposures.”
“The relative performance of our list of the top inflation-correlated Russell 1000 stocks is outperforming breakeven inflation rates,” said Wilson, the bank’s chief U.S. equity strategist. “Given fairly full pricing relative to already elevated inflation expectations, we’re not inclined to chase the ‘inflation trade,’ but rather see the group as an effective portfolio hedge should inflation expectations rise further, or a trade to return to if expectations reset.”
Nonetheless, banks and many commodity shares were higher in Wednesday’s trading, indicating that there may be more to come in this trade, especially if this is just the beginning of a longer inflationary period.