Sell Tech, Buy Green Is Wall Street’s Playbook for Trading China

(Bloomberg) -- Sell businesses that politicians want to reform and buy the ones they want to build. That’s the advice coming from Wall Street equity strategists for anyone trying to navigate Chinese markets.

The fast-moving and sweeping regulations coming from Beijing have upended the investment case for China and sowed confusion among money managers about how to make sense of regulations that touch everything from Internet giants and ride-hailing apps to education and housing.

In the reams of bank thinkpieces this week, Goldman Sachs Group Inc. and Societe Generale SA strategists laid out the case for buying green energy and software stocks because of China’s ambitions to expand in renewables and support chipmakers to counter U.S. influence. On the opposite side, they warned about the risks facing Big Tech education, media and housing related companies.

Here’s some highlights from this week’s commentary:

Societe Generale

• “Being aligned with long-term policy goals matters a lot,” wrote cross-asset strategists including Frank Benzimra
• Avoid industries that might be perceived as increasing inequality, like education and housing.
• Stay positive on companies that’ll help China reach independence in technology, such as green energy, semiconductors, artificial intelligence and 5G.
• Prefer HK to U.S.-listed companies.

Goldman Sachs

• “We still are of the view that the authorities would be pragmatic when striking a balance between social/ideological goals and capital markets in non-social sensitive industries,” said strategists led by Kinger Lau.
• Even though tech looks cheap, earnings-based valuation models may not be useful predictor, given the unstable environment.
• Keep overweight on Chinese A-shares because of higher index weights in areas of strong policy support.

Morgan Stanley

• “No broad bottom-fishing yet as market concerns over regulatory actions may not have been fully relieved yet,” wrote strategists including Laura Wang.
• Prefer A-shares because there’s less exposure to education and Internet companies.

UBS Global Wealth Management

• “We recommend investors cherry-pick stocks across sectors that are supported by earnings growth but have limited regulatory risk exposure,” wrote Chief Investment Officer Mark Haefele.
• Prefers consumer durables, energy, and green technology.

AllianceBernstein

• “We believe recent events reinforce some benefits of the domestic A-share market,” wrote John Lin, portfolio manager of China Equities.
• Stocks listed in China’s home market are less likely to be targeted by regulators and there’s no national security issues in A-shares.

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