China stock pickers reshape portfolios on Xi's 'common prosperity'

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Investors look astatine an physics committee showing banal accusation astatine a brokerage location successful Shanghai, China, March 7, 2016. REUTERS/Aly Song

SHANGHAI, Nov 2 (Reuters) - Chinese banal marketplace investors are swapping large tech names for "small giants" and luxury brands for wide marketplace companies, aiming to currency successful connected President Xi Jinping's "common prosperity" program for the economy.

The intent down Xi's thrust is simply a narrower spread betwixt the affluent and mediocre successful the world's 2nd largest economy.

But the archetypal argumentation moves rattled markets arsenic authorities introduced dense caller regulations connected industries specified arsenic technology, spot and backstage tuition, sending shares successful those sectors tumbling.

While immoderate progressive money managers person shunned China for the clip being, others spot accidental successful an system aiming for a larger and richer mediate class.

Chinese policymakers "are talking astir however to spell from a pear-shaped benignant of economy, which is bottom-heavy, top-light, into an olive shape," said Ronald Chan, Hong Kong-based Asia caput of equities astatine Manulife Investment Management. "They are talking astir however to divided the pastry going forward."

"Common prosperity" besides embodies China's tendency for self-sufficiency successful exertion and vigor and for manufacture to determination up the worth chain, said Chan, who has been buying Chinese star vigor companies portion avoiding luxury tone brands.

Manulife's Greater China funds , person besides slashed holdings successful tech giants specified arsenic Alibaba (9988.HK) and Tencent (0700.HK) implicit the past year, according to nationalist disclosures.

While it is hard to estimation however large wide concern swings person been - peculiarly arsenic passively managed funds proceed to question banal scale heavyweights - marketplace moves person been sharp.

China's caller vigor scale (.CSI000941) has surged much than 70% this year, portion the spot assemblage (.CSI000006) is down implicit 10%.

Among tech companies, those offering "hard" products and components person performed amended than "soft technology", specified arsenic online providers.

The KraneShares CSI China Internet ETF has plunged astir 40% truthful acold this year, portion China's start-up committee ChiNext (.CHINEXTC) is up 13% and Shanghai's hardware-heavy STAR Market, has hardly budged.

"We've seen a batch of precise utmost sentiment connected China. Is it going backmost to Maoism? Is it investible?" said William Sterling, planetary strategist astatine GW&K Investment Management, which invests successful emerging markets including China.

"It seems very, precise improbable that adjacent with these caller argumentation initiatives, the authorities would privation to propulsion distant the dynamism of the system that the country's capitalist motor has created."

Sterling bets Chinese user stocks volition payment from a increasing mediate class, but is avoiding spot firms and related sectors specified arsenic cement and steel.

Winners and losers nether China's "Common Prosperity" initiative

DIVERGING FORTUNES

Goldman Sachs has picked 50 "common prosperity" stocks successful sectors including greenish and renewable energy, hard technology, higher-end manufacturing and wide but unsocial depletion brands.

Its database includes indigenous brands specified arsenic Xiaomi (1810.HK) and Li Ning (2331.HK), spot makers Will Semiconductor (603501.SS) and Hua Hong Semiconductor (1347.HK), arsenic good arsenic greenish vigor companies LONGI Green Energy (601012.SS) and Xinyi Solar (0968.HK).

Goldman advises investors to shun sectors susceptible to regulatory headwinds including luxury consumption, brushed tech with precocious information intensity, on with education, property, media and entertainment.

Investors are already piling into electrical vehicles and chipmakers.

China Universal CSI New Energy Vehicle Industry Index ETF has seen its assets nether absorption (AUM) astir triple to 9 cardinal yuan ($1.41 billion) this year, portion the Guotai CES China Semiconductor Chips ETF has witnessed a adjacent doubling successful AUM.

Societe Generale has a "common prosperity" handbasket of 30 stocks, which includes user companies specified arsenic China Tourism (601888.SS), Anta Sports (2020.HK) and Gree Electric (000651.SZ), arsenic good arsenic tech firms including Luxshare Precision (002475.SZ) and Nari Technology (600406.SS).

In the mean term, "common prosperity" volition amended the purchasing powerfulness of the lower-middle income radical successful China, truthful benefiting user staples and the work assemblage including tourism, catering and affordable healthcare, said Caro Liao, China economist astatine enslaved money elephantine PIMCO.

"In the agelong run, a decently regulated concern situation apt volition payment each investors, by reducing vulnerabilities successful the strategy and ensuring a sustainable maturation path."

China tiny caps outperform ample caps this year

($1 = 6.3999 Chinese yuan renminbi)

Reporting by Samuel Shen Additional reporting by Vidya Ranganathan successful Singapore Editing by Lincoln Feast.

Our Standards: The Thomson Reuters Trust Principles.

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