15 Stocks That Don't Need a Trade Deal to Reward Investors

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15 Stocks That Don't Need a Trade Deal to Reward Investors THE DOW JONES BUSINESS AND FINANCIAL WEEKLY www.barrons.com NOVEMBER 1, 2019 COVER % China Roundtable: 15 Stocks That Don’t Need a Trade Deal to Reward Investors The following has been excerpted By Reshma Kapadia ons, and offer insights into their favorite important, China was acting more assert- Chinese stocks in the edited Roundtable ively as a geopolitical rival. Now, there is China’s economic slowdown, its trade transcript below. The group includes Ar- no consensus on our stance against China. dispute with the U.S., and pro-democracy thur Kroeber, founding partner of China David Semple: The narrative has hard- protests in Hong Kong have dominated research firm Gavekal Dragonomics, who ened politically and probably on Main the news this year. Yet, for all this turmoil, splits his time between New York and Bei- Street against China. We might not have Chinese stocks have done remarkably well. jing; Winnie Chwang, co-manager of the consensus, but it’s not moving in a good The Shanghai Composite index, home to $796 million Matthews China fund (ticker: direction. stocks bought mainly by domestic inves- MCHFX); Lewis Kaufman, manager of tors, has returned 19% in U.S. dollars, the $2.7 billion Artisan Developing World What does this mean for investors? while the Hong Kong–traded Hang Seng Strategy and David Semple, manager of Winnie Chwang: China has already piv- index, whose shares are favored by foreign the $2 billion VanEck Emerging Markets oted to a services- and a consumption-led investors, is up 10%. fund (GBFAX). economy. Net exports have dipped below The members of Barron’s China Round- 1% of gross domestic product, so China has table offer an easy explanation for these Barron’s: Let’s tackle the 800-pound more incentive to get its own economy right. and further gains: China’s domestic market panda in the room. What is the out- Increasingly, people on the ground in is enormous and growing rapidly, fueling look for U.S.-China relations? China feel the trade war isn’t a bad thing. demand for education, life insurance, me- Arthur Kroeber: The relationship is un- It’s like a wake-up call. China has been too dia, sportswear, and baijiu, the famously dergoing a very important reset. For a reliant on foreign technology for too long. fiery national liquor. And it isn’t just big long time, there was a consensus among We are optimistic on outcomes from a trade spenders in Beijing or Shanghai who are U.S. policy makers on China: that it was in war. But even if the trade war goes away, scarfing up services and stuff, but increas- the U.S. national interest to enable China’s it won’t stop China’s intent to ramp up its ingly consumers in smaller cities that are economic rise, to encourage China’s inte- own technology know-how. home to roughly the population of the U.S. gration into global institutions, and to in- That’s a big trend: the gradual substi- No one is dismissing the risks: The re- crease integration of the U.S. and Chinese tution of domestic technology for foreign lationship between the U.S. and China is in economies. This was a hardheaded calcu- technology. For example, historically, high- flux, driven by China’s rise as an economic lation: China clearly was going to be big, end industrial components were imported. power and what U.S. Secretary of State it had a different system, and it would be But with the ongoing trends to promote Mike Pompeo called “competing ideologies important to influence China’s behavior— localization of technology, AVIC Jonhon and values” in a speech this past week. The and minimize the risk of conflict between Optronic Technology [002179.China], for current manifestations of this tension in- the U.S. and China by making the cost of instance, which makes industrial compo- clude U.S. tariffs on more than $360 billion conflict too high. On top of that, there was nents, could benefit from market-share of Chinese goods—with the possibility of a perception that China was a gigantic growth in areas where foreign represen- more on the way, notwithstanding recent market that would be beneficial for U.S. tation is still high. Many stocks that fall optimism in both countries about a poten- companies to get a piece of. within this theme have seen significant tial initial trade deal. Investing in an au- That broke down a few years ago be- price appreciation without the ability yet thoritarian state also entails potential dan- cause American businesses were complain- to deliver profits. Profitability may take gers, as does China’s opaque debt market. ing that they were facing a more difficult awhile, since it is expensive to rev up tech- Our four panelists put these risks in environment due to intellectual-property nological capabilities and it requires in- context, explain why China’s market beck- theft and market-access barriers, and more vestment. (over please) THE PUBLISHER’S SALE OF THIS REPRINT DOES Not CONSTITUTE OR IMPLY ANY ENdoRSEMENT OR SpoNSORSHIP OF ANY PRODUct, SERVICE, COMPANY OR ORGANIZATION. Custom Reprints 800.843.0008 www.djreprints.com DO NOT EDIT OR ALTER REPRINT/REPRODUCTIONS NOT PERMITTED 56929 Lewis Kaufman’s Picks Portfolio Manager, Artisan Developing World Fund AIA Group 1299.HONG KONG Recent Price: HK$78.45 Nvidia NVDA Recent Price: $201.02 Remy Cointreau RCO.FRANCELewis RecentKaufman’ Price:s €1Pi19.90cks Portfolio Manager, LVMH Moët Hennessy Artisan Developing Louis Vuitton WWorldorld FundStrategy MC.FRANCE RecentAIA Group Price: €382.501299.HONG KONG Source:Recent Bloomberg Price: HK$78.45 Nvidia NVDA Recent Price: $201.02 Remy Cointreau RCO.FRANCE Recent Price: €119.90 LVMH Moët Hennessy Louis Vuitton MC.FRANCE Recent Price: €382.50 Source: Bloomberg Kroeber: Streaming music and streaming video some de-stocking in the U.S. ahead of tariffs, are huge in China and basically totally unmone- and also because of the weakness in Hong tized—but not unmonetizable. There is still a Kong. It’s a supply-constraint story and there is question of who is going to crack the code of a lot of pricing power in mainland China. “I worry about getting people to pay for this content. When technology With MSCI adding China’s domestic A-shares to its they do, that is going to be a spectacular blacklists amount of money. emerging markets index, investors have an array of Kaufman: We like Remy Cointreau options for investing in China. Which do you choose? and the [RCO.France]. The premium cognac company Chwang: Increasingly, we have pivoted toward restriction of has come under pressure recently because of an all-China approach. Last year, Chinese A- American tech- Barron’s shares were down roughly 30%, so we took the nology in China; opportunity to increase our exposure. This year, Tell Us What You Think: What is your outlook the Hong Kong market hasn’t moved much and I worry about a for China’s economy? Write us at [email protected] could present a buying opportunity because the full decoupling.” Valerie Chiang for Valerie and we may publish your take. Find out more at A-shares market has rallied quite a bit. But de- Lewis Kaufman barrons.com/mailbag. spite the backdrop of all this trade rhetoric, There is growing optimism that Pres- 2018 that said that instead of just looking deal] just doesn’t matter. The focus for us ident Donald Trump and China’s Xi at narrow national-security issues, the U.S. is on companies playing into the future of JinpingKroeber: willStreaming sign an music initial and trade streaming deal videogovernment some cande-stocking now control in the the U.S. export ahead of of China.tariffs, If your business model is predicated soon.are huge Will in that China remove and basically the uncertainty totally unmone- any technologyand also onbecause a list of thetechnologies weakness to in Hongon nimble fingers making cheap goods for tized—but not unmonetizable. There is still a Kong. It’s a supply-constraint story and there is hovering over the global economy? be published by the Commerce Depart- export, that model is ephemeral because question of who is going to crack the code of a lot of pricing power in mainland China. “I worry about Kroeber: A trade deal isn’t likely to be of ment. We are still waiting for the list. It someone else comes along with cheaper getting people to pay for this content. When much macro significance. It is priced in is clear that semiconductors, artificial in- labor or weakertec hnolocurrency.gy People think they do, that is going to be a spectacular With MSCI adding China’s domestic A-shares to its and will be narrowly constructed. It also telligence, robotics, and 3-D printing will about that—andblackl diggingists things out of the amount of money. emerging markets index, investors have an array of won’t prevent a whole host of aggressive be implicated in some way. The question ground—as emerging markets. It’s not. It’s Kaufman: We like Remy Cointreau options for investing in China. Which do you choose? and the measures by the U.S. to confront or ham- is how much, and how restrictive it will about people going out to hot pot restau- [RCO.France]. The premium cognac company Chwang: Increasingly, we have pivoted toward restriction of string China in other ways. There is a lot be. Investors should be paying very close rants, drinking baijiu, wearing Lululemon has come under pressure recently because of an all-China approach.
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