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Stocks

JPMorgan affiliate bullish on Chinese shares despite slowing economic growth

It says Beijing’s low-risk policies are likely to improve investment opportunities in the mainland equities market, especially shares in household appliance suppliers, medicine and food producers and electronics firms

PUBLISHED : Thursday, 26 October, 2017, 7:18am
UPDATED : Thursday, 26 October, 2017, 11:47am

China’s economic growth may slow in the fourth quarter because policymakers will continue to reduce excessive risky lending and keep liquidity conditions tight in the financial markets.

According to China International Fund Management, a joint venture between JPMorgan Asset Management and Shanghai Trust, companies with stable revenue and low valuations will not be affected, but the policies are likely to improve investment opportunities in the mainland equities market.

“We see investment opportunities arising in household appliances, medicine, food and electronics in the rest of the year,” said Jenny Szeto, senior fund manager of CIFM Asset Management Hong Kong.

Gross domestic product rose 6.8 per cent in the third quarter after 6.9 per cent growth in the first half. CIFM is predicting expansion of 6.8 per cent for the full year.

Szeto tips “innovative medicine”, particularly, after recent decisions by the medical regulator to speed up their approval processes, after President Xi Jinping laid out in his 19th Party Congress report on health care policies, promotion of a “healthy China”.

We see investment opportunities arising in household appliances, medicine, food and electronics in the rest of the year
Jenny Szeto, senior fund manager of CIFM Asset Management Hong Kong, a JV with JP Morgan

State news agency Xinhua cited Xi as highlighting improvements to the medical insurance system, implementing health care reforms to establish more modern hospital management systems, promoting the wider use of traditional Chinese medicine, and supporting the creation of private medical institutions.

“If the launch of innovative new medicines can be quicker, that will boost their earnings growth,” Szeto said.

Elsewhere, CIFM forecasts new-energy-vehicle battery sales to grow 40 per cent this year after demand slumped last year without the incentive of lower subsidies for buyers, which have now been introduced.

“The outlook of ternary lithium batteries is positive as they have strong pricing potential,” Szeto said, adding sales of international new energy vehicles are expected to grow by 30 per cent in the next three years.

Also likely to be toasted are earnings for producers of traditional Chinese liquor, or baijiu, fuelled by continued rising wholesale prices of top-grade products such as Moutai, despite the lingering effects still of the government’s crackdown on extravagance, especially by government officials.

Baijiu’s most-famous distiller Kweichow Moutai’s shares touched a record intraday high of 585.15 yuan each on October 19.

CIFM also tips household appliances stocks, which have low valuations after underperforming in the third quarter.

She cautioned, however, that rising raw material costs have had a negative impact on the earnings of some household appliance makers, which helped stunt third quarter results because producers had to raise their price tags on some items, to maintain revenues.

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