Bigger is better when it comes to picking Chinese stocks, says analyst who’s got it right so far
- After beating the benchmark index so far this year, the nation’s largest firms will continue to outperform, according to Chen Li, chief economist at Soochow Securities
- Chen successfully predicted in January that mainland-traded stocks would rise in the first quarter and that the rally would stall in April
Bigger is better when it comes to picking Chinese stocks. That is the tip from an analyst whose forecasts for equities at the start of the year have proved spot on.
After beating the benchmark index and growth stocks so far this year, the nation’s largest firms will continue to outperform amid industry consolidations and an expanding base of foreign investors, according to Chen Li, chief economist at Soochow Securities.
Growth stocks typically refer to companies with a small market capitalisation and prospects of fast profit growth, and whose valuations vary according to factors like monetary policy.
Shares of the 50 biggest companies trading on the Shanghai and Shenzhen exchanges in terms of market cap have risen by an average 36 per cent in 2019, more than double the gain on the Shanghai Composite Index, according to Bloomberg data.
Leading players in industries from alcoholic drinks to household appliances and financials have been the biggest winners. Among them, liquor distillers Kweichow Moutai and Wuliangye Yibin have advanced at least 64 per cent, and China Merchants Bank 49 per cent.
The preference for big caps may strengthen and extend to industries such as auto making, machinery and media, said Chen, who correctly predicted in January that mainland-traded stocks would rise in the first quarter and that the rally would stall in April.
“The process for giving valuation premiums to industry giants is far from being over,” he said. “Industry leaders that now trade at discounts are pretty attractive.”