Chinese investors are turning to semiconductors, renewable energy, and consumer- companies because they believe these companies can provide a safe haven from regulatory actions that dampen confidence and force to completely adjust their investment portfolios.

Fund managers believe that the crackdown over the past few months has hit stocks in industries ranging from tuition to large technology industries. This is part of a major push by the Chinese Communist Party’s leadership to pursue common prosperity at the expense of private sector profits.

However, as online giants such as Tencent and Alibaba and other companies in the crosshairs evaporate billions of dollars in value due to the sell-off, the stock prices of the companies on the right side of the reform have soared.

For example, since June, China’s clean energy stocks and semiconductor company indexes have risen by more than 30%, while the broader market has fallen by 5%, and Hong Kong technology stocks have fallen by 15%.

“Buying came from a variety of investors,” said Suresh Tantia, senior investment strategist at Credit Suisse.

“Foreign investors’ mutual funds, because of their authorization, they still need to allocate in China, so they now want to invest in accordance with the support provided by the government,” he said.

Investors screened for policy clues from the official media and Chairman Xi Jinping’s speeches and books, and saw that a prominent focus is to reduce greenhouse gas emissions-its broad goal is to reach the peak of carbon emissions by 2030 and carbon neutrality by 2060.

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Similar broad goals to promote domestic demand and local production have provided support for consumer discretionary companies and industries listed on the mainland.

Alex Wolf, head of investment strategy at JPMorgan Chase’s Private Bank, said: “From a self-sufficiency perspective, there are (electric vehicles), renewable energy, semiconductors… We observe these industries and find that they are to continue to gain support.”

“The other is to upgrade manufacturing,” he said. “China is very keen. They have already said in the five-year plan that they want to maintain a certain share of the manufacturing industry in the economy… (and) if there is one, increase it.”

Like the portfolio managers of Citi Private Bank and BNP Paribas Wealth Management, Wolf prefers to go public on the mainland because it is less subject to regulatory scrutiny and the market structure tends to stay away from targets such as technology or Internet companies.

Morgan Stanley Chief Asia Economist Chetan Ahya said in a report last week; “Our stock strategists (believe) over time, MSCI China will gradually have a more balanced industry allocation and the weight of the Internet Will be lower, while the weight of industries such as industry and IT will be higher.”

© Thomson Reuters 2021

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