Top China Manager Says EV Stocks Offer Shelter From Crackdown

Chinese electric vehicle-related stocks can offer shelter from the nation’s regulatory crackdown on technology companies, according to one of the nation’s top performing asset managers -- if investors can stomach soaring valuations.

Xiong Lin, a fund manger at Shanghai Ruiyi Investment Development Center, recommends those already holding EV firms and their supply chain resist the urge to take profit in a market he sees having a greater tolerance for higher valuations in light of a required reserve ratio cut -- a boon for liquidity sensitive growth stocks.

Deemed an area of strategic growth, Beijing’s goal is for EVs to account for 20% of vehicles sold in 2025. Global funds have also been upbeat on the sector because of China’s continued dominance in global EV battery production, and the nation’s supportive industry policies serving its ambitious plan of reaching carbon neutrality in 2060.

“Policy support for the industry sets it apart from other tech plays, making it a safer bet amid anti-monopoly measures on internet firms,” Xiong said in an interview in Shanghai.

Xiong helps oversee 3 billion yuan ($464 million) of assets in China and Hong Kong stocks, with one of the firm’s products up 55% for the year as of July 9, ranking among the top 2% of peers according to the most recent available data from fund tracker Shenzhen PaiPaiWang Investment & Management Co.

Top China Manager Says EV Stocks Offer Shelter From Crackdown

In the first half, new-energy vehicle wholesale deliveries in China totaled 1.1 million vehicles while retail sales were around 1 million, according to data from China’s Passenger Car Association. That’s on course to beat the PCA’s 2021 full-year target of 2.4 million units and the association’s secretary general said the first-half data were “beyond our imagination.”

Industry fundamentals will stay robust in the next three to five years as market penetration accelerates, Xiong added.

To be sure, valuations in the sector may not be attractive as an entry point for some. A new-energy themed ETF is trading near a record high after gaining 60% from a low this year. Tesla battery supplier Contemporary Amperex Technology Co. and electric-car maker BYD Co. are both trading at a forward multiple above of 100 times, nearly double their three-year average.

Hitting a fresh high this week, CATL has become the third-largest stock traded in mainland China, overtaking a handful of financial giants in the space of weeks. The stock, which has a 17% weighting in the tech-heavy ChiNext Index, has contributed nearly half of the gauge’s gains over the past six months. CATL shares slid 6.5% on Friday, the most since March.

Xiong sees the stock extending its outperformance in the second-half. Smaller outperformers recently include lithium ion battery materials maker Ningbo Shanshan Co., up 38% this month, and its peer Ningbo Ronbay New Energy Technology Co., which is up 13% during that time.

He expects sideways trading in the benchmark CSI 300 Index throughout the remainder of the year. Supplementing returns for his fund in the past few months have been earlier wins in cyclical shares and lower-end liquor names, he said.

©2021 Bloomberg L.P.

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