Yahoo Finance Top China Stock Fund Likes Consumer and Climate-Affected Stocks Over Distillers
(Bloomberg) -- China’s consumer and climate change-affected stocks will offer better returns than the likes of baijiu distillers given relative valuations and the weak economy, according to AllianceBernstein.
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John Lin, AllianceBernstein’s chief investment officer for China equities, is cooling on premium liquor makers as the nation struggles to emerge from economic weakness. Instead, he is bullish on producers of commodities such as dairy and sugar, expecting their prices to stay elevated due to extreme weather events.
“In an environment where the economy is weak and consumers are trading down,” baijiu makers are “just not an area where you’re going to see a boom” given high prices, Lin, whose biggest fund is beating 91% of peers year-to-date and still currently has Kweichow Moutai Co. as his top holding, said in an interview. “Valuation is not that compelling — they simply haven’t fallen that much.”
Industry leader Moutai is trading at about 23 times forward earnings, versus around 18 times for global peers like Bud Light maker Anheuser-Busch Inbev SA or brewer Heineken NV. Moutai’s valuation is close to double that of the CSI 300 Index.
China has been seeing a consumption downgrade where people are buying more value-for-money products amid a slow economic recovery. Industry leader Moutai and Wuliangye Yibin Co. announced surprise price hikes in November, but are struggling to keep the upward price momentum. Wholesale prices for Feitian, Moutai’s flagship product, have been falling this year due partly to weak demand.
Industrial manufacturing is another sector Lin likes, including upstream raw materials, steel, cement, and construction. He pointed to “diesel engine makers, forklift makers and bus makers” that have both domestic leadership in their niche market and strong emerging-market exports.
Lin also thinks shares related to climate-change-affected food staples like dairy and sugar are underestimated. China’s biggest sugar producers include Cofco Sugar Holding Co., with a price-to-earnings ratio of around 10, down from about 45 in late 2021. Inner Mongolia Yili Industrial Group Co., a major dairy-related name, has a P/E ratio of 14, compared with around 44 times in early 2021.
“Ever since the height of Covid, many of these consumer staples — really big brand names — are trading at about half of the level they were a couple years ago,” Lin said. “Which invariably makes you wonder if there is an underestimation of the long-term value.”
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