The latest quarterly reports of major Chinese companies highlight the importance of being a stock picker in the local market. According to Lorraine Tan, director of Asia equity research at Morningstar, there has been outperformance in certain companies, but this has not been consistent across the board. The trend seems to reflect weakness in the overall market, with cautious guidance being provided by companies. The outperformance of certain companies can be attributed to their resilient product mix or strong market positions.
Alibaba and Tencent reported significant increases in capital expenditures in the last quarter, pointing towards a potential turnaround in domestic demand for Chinese data center companies like GDS Holdings. This observation by Morgan Stanley China equity strategist Laura Wang suggests a positive trend in the market. GDS Holdings has been added to the focus list by Wang’s team, mainly because of its first mover advantage in overseas expansion, particularly in Malaysia.
Another Chinese company, PDD Holdings, is also looking to expand its overseas growth. With the second-largest weighting in the CoreValues Alpha Greater China Growth ETF, PDD Holdings is expected to report earnings soon. This indicates a growing trend in Chinese companies focusing on international markets for growth. The ETF, which only holds Chinese companies that align with certain criteria, has managed to avoid significant outflows despite a downturn in the market.
Ben Harburg, founder of CoreValues Alpha, believes that active trading of Chinese public markets is more effective than passive investment strategies. The ETF holds a diversified portfolio of Chinese companies and has been changing it frequently to adapt to market conditions. While the CGRO ETF has shown a slight decline in performance compared to other funds like KraneShares CSI China Internet ETF, Harburg remains optimistic about its long-term prospects.
Despite the potential for growth in Chinese stocks, uncertainties surrounding growth and policy have hindered significant recovery since the pandemic. Harburg does not expect Beijing to stimulate growth, indicating that the market may need a catalyst from external factors like a U.S. stock market drop. With Japanese and Indian stocks outperforming Chinese counterparts this year, the market may face challenges in attracting capital in the near future.
The latest quarterly reports of major Chinese companies reveal a mixed outlook for the market. While some companies have shown resilience and outperformance, overall market trends reflect weakness and caution. The focus on overseas growth and active trading strategies highlight the need for a nuanced approach to investing in Chinese stocks. Moving forward, market participants will need to closely monitor developments in both domestic and international markets to navigate the complexities of the Chinese market.
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