Benzinga - by Shanthi Rexaline, Benzinga Editor.
Emerging markets fund manager Mark Mobius on Friday offered his take on the underperforming Chinese and Hong Kong markets and potential investment opportunities.
Turning The Corner? People have now begun comparing the Chinese and Hong Kong markets with India, which has seen a huge run-up, and see there is an opportunity for the former two to outperform, said Mobius, the founder of Mobius Capital Partners. The emerging-market investment guru shared his views in an interview with Bloomberg.
Source: Benzinga
“I am not predicting that but I think people are beginning to look at the valuations and beginning to think that perhaps it’s gonna be a good opportunity there,” the investment manager said.
Delving into the criteria for screening stocks, Mobius said his firm uses return on assets and return on capital, which he termed as very important. He also said he would look into earnings per share growth.
“We like companies with low debt,” Mobius said.
“Some of the stocks in China and Hong Kong are beginning to beat on some of those criteria.”
Mobius also disagreed with the view that the weakness in Hong Kong and China is due to Chinese authorities’ problems with their messaging to the global markets. “Chinese officials are trying their best to regain confidence,” he said.
“At the end of the day, it is the Chinese investors who drive the Chinese market, not foreign investors, so the first order of business will be for them to instill confidence in Chinese investors’ minds.”
Mobius sees a return of confidence among Chinese investors once the housing problem is over but he cautioned that it will take some time. He said that Chinese investors have a lot of money in their property more than in the stock market. If the property situation improves, then money would go flowing into the stock market, he added.
Given the ailing property market and disinflation in China, the appropriate strategy for investors in the domestic market is to keep an eye on the U.S. interest rate, the fund manager said. The possibility of the Fed cutting rates is positive for emerging markets generally, and for China as well, because one of the problems is the higher interest rates Chinese property investors have to face.
EM Index Vs. Individual Stocks: Mobius said he wouldn’t buy an emerging market index but would look at individual markets. The emerging markets index has performed so badly because of China, he said. Even if one were to consider an index, it should be an emerging market index, excluding China, he added.
But Mobius warned about the demerits of leaving out China. “China may pick up and then you lose that opportunity. But I pick individual stocks to begin with,” he said.
While sharing the interview on X, formerly Twitter, Mobius elaborated his views further. “As the Chinese saying goes, ‘where there is risk, there is opportunity,’ Whenever a stock market takes a dive, one thing comes to my mind: time to go shopping for hidden gems at a steal,” he said.
“With Hong Kong's market at a multi-year low, I’m starting to see value in some local stocks.”
Why It’s Important: China, one of the biggest drivers of global economic growth, has been hampered further by the stock market downturn. Sensing the lurking danger, Chinese authorities have orchestrated their willingness to implement measures to prop up the stock market that has been spiraling downward.
U.S.-listed Chinese large-cap stocks such as Alibaba Group Holding Ltd. (NYSE:BABA), JD.com, Inc. (NASDAQ:JD), Baidu, Inc. (NASDAQ:BIDU), and Tencent Holdings Limited (OTC:TCEHY) took a hit even ahead of the domestic stock market swoon.
Threatened by the massive scale of operation of these companies, the Communist regime took steps to rein them in, as they were seen to be monopolizing the business areas they were operating in. Alibaba, for one, has been feeling the pinch since mid-2020.
Source: Benzinga
The domestic stock market swoon has stalled any fightback by these stocks despite their oversold levels.
The iShares MSCI China A ETF (CBOE: CNYA) ended Friday down 0.42% at $24.88 and the iShares MSCI Hong Kong ETF (NYSE:EWH) fell 1.73% to $15.92, according to Benzinga Pro data.
Read Next: Is China’s Stock Market Poised For A Turnaround? Analyst Points To 3 Promising Signs Amid Policy Shifts
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