Analysts at Citigroup Inc. are touting domestic yield plays as safer bets as the artificial intelligence-led bull run in Chinese equities confronts the risk of higher tariffs. Those at JPMorgan Chase & Co. recommend buying shares of banks with a good track record of earnings and dividend payouts.
“A style rotation will likely start in the Chinese market in the coming weeks,” Hao Hong, chief investment officer at Lotus Asset Management Ltd., wrote in a note Monday. “The relative performance of growth sectors versus the value sectors is near its historical highs and will soon revert.”
The CSI 300 Growth Index has beaten its value counterpart by 25 percentage points so far this year, poised for the best annual outperformance in two decades, according to data compiled by Bloomberg.
Chinese stocks plunged on Monday as trade tensions took centre stage after US President Donald Trump late last week threatened to slap an additional 100% tariffs on Chinese goods. That was in response to Beijing’s unveiling of broad new curbs on its exports of rare earths and other critical minerals.
While Trump later signalled he’s open to talks, the market’s reaction shows investors remain jittery.
Financials Outperform
The benchmark CSI 300 Index ended Monday’s morning session down 1.8%, but a sub-gauge of utilities fell only 0.2%. A measure of financial shares slipped 0.8%, with stocks of some large lenders faring even better. China Construction Bank Corp. rose, and Industrial & Commercial Bank of China Ltd. was down less than 0.5%.
Macquarie Capital Ltd. is advising investors to rotate out of momentum-driven winners into shares of firms positioned to benefit from China’s consumption stimulus.
“Investors should sell high-beta brokers, pharma and semiconductor stocks and shift to consumption stimulus plays like consumer discretionary,” strategists, including Eugene Hsiao, wrote in a note.
That said, some pockets of growth stocks remain attractive for investors, particularly those related to China’s localisation efforts.
Shares of Chinese chipmakers bucked the broader selloff on Monday amid expectations that the trade spat will intensify Beijing’s focus on boosting self-reliance in the technology sector to reduce reliance on US imports.
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