As Wall Street sees a Chinese stock market ‘on sale,’ others warn ‘that game is over’

As Wall Street sees a Chinese stock market ‘on sale,’ others warn ‘that game is over’

Xi Jinping, general secretary of the Communist Party of China CPC Central Committee, Chinese president and chairman of the Central Military Commission, delivers an important speech at a ceremony marking the 100th anniversary of the founding of the CPC in Beijing, capital of China, July 1, 2021.

Ju Peng | Xinhua News Agency | Getty Images

Financial advisors have been telling investors for years that if you have a long-term portfolio view of the future, it has to include China. With its stock market down huge this year and its government asserting even more control over its companies, is that still true, or is the time already past to cut and run from stocks in the world’s second-biggest economy?

The biggest investing institutions say the benefits of being exposed to China not only remain true, but China’s market may be a buy relative to the U.S. stock market given its recent swoon. U.S. equity volatility is up, too, but not enough to put a major dent in valuations after what these investors say has been a period of atypically high returns. The MSCI China Index is down nearly 20% this year, while the S&P 500 Index is up nearly 16%, even after the recent selling and its first 5% decline in over a year.

“China has gone on sale,” said J.P. Morgan Asset & Wealth Management CEO Mary Erdoes at the recent CNBC Delivering Alpha conference.

Erdoes, who serves on the U.S.-China Business Council, expressed surprise over the level of reaction to recent moves made by the Chinese government to assert more control over its capital markets and company management.

“All of the hand wringing the world has about words coming out of China is the same thing you hear out of U.S. government so I am not sure why it causes so much consternation,” Erdoes said at Delivering Alpha, alluding to, among other things, the Chinese government’s “common prosperity” plan to spread wealth among the population. Some of China’s largest internet companies, including Alibaba and Tencent , which have been targets of Chinese government monopoly concerns, have said they will invest billions of dollars in this plan.

For some investors, even among the billionaire class, when it comes to generating returns in China it’s not only about the money. After BlackRock recently increased its investment focus on China, George Soros took to the pages of the Wall Street Journal to decry “BlackRock’s China blunder” and a national security threat to the U.S.

BlackRock has urged investors to increase exposure to China by three times, according to a New York Times article on Wednesday looking into the pervasive Chinese market bullishness on Wall Street . Read more about China from CNBC Pro

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China’s power crunch is a bigger concern than Evergrande, says top fund manager

China is facing an energy crisis. Here’s how to play the market, according to Jefferies

Erdoes reiterated a broad case that has long been made about exposure to China, namely, a middle-class economy that is rising and includes hundreds of millions of people. And she cautioned against reading too much into the recent market headlines. The financial struggles of the Chinese property giant Evergrande are not insignificant, but it is not another Lehman Brothers, Erdoes said, and she added it is “not the largest thing happening in China.”

Meanwhile, government scrutiny of figures like Alibaba founder Jack Ma is part of a broader regulatory wave in China that in the end will benefit the investment community, she argued at the CNBC event. To be sure, other top investors with experience in China who spoke at Delivering Alpha said betting on China is not worth the current level of risk.

The Chinese market concerns are occurring amid a wider geopolitical battle between the U.S. and China which has not eased under the Biden administration. Charlie Munger’s call on China

Erdoes looked to a respected source of market wisdom for backing on her China view: Berkshire Hathaway vice chairman Charlie Munger. She cited a CNBC interview from late June, when Munger — who invested early in Chinese company BYD — said he was in favor of the way the communist Chinese were acting against market excess.

“And our own wonderful free enterprise economy is letting all these crazy people go to this gross excess,” Munger told CNBC’s Becky Quick as part of the Warren Buffett-Charlie Munger documentary “A Wealth of Wisdom.”

“People who are avoiding it are the communist Chinese. They […]

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