Citi picks Chinese stocks that stand out against a wave of downgrades
Citi’s equity analysts reshuffled their top China plays after their downgrades outnumbered upgrades in the latest earnings season. China’s “economic recovery appears to be slower than market expectations,” the strategists said in a Sept. 2 report. “In our view, the economy will only improve significantly if there is significant and sustainable policy easing of the COVID lockdown measures, the outlook for which is uncertain.”[ads1]; “Monetary support is limited by concerns about excessive Rmb depreciation and fiscal measures are limited by lower property sales,” they said. Investment banks have repeatedly cut their forecasts for China’s gross domestic product this year as tight Covid controls have curbed business activity. Beijing signaled at the end of July that no large-scale stimulus was on the way, and that the Covid policy would not change. It is against this economic backdrop that Citi’s analysts downgraded 12 Chinese stocks and upgraded eight. Here are three stocks from their updated list of the best Hong Kong and mainland Chinese stocks to buy. PetroChina Price target: 4.40 Hong Kong dollars (56 cents), for upside of nearly 28% from Thursday’s close. The state-owned energy giant is Citi’s pick for the second half of this year “as it is a direct beneficiary of high oil prices,” the analysts said. They upgraded the stock from “neutral” to “buy” with a new target price of HK$4.40. The analysts expect PetroChina to control losses in the second half of the year as there will be better market dynamics: higher energy prices in winter and lower input costs from Russian gas. Meituan price target: 235 Hong Kong dollars, for a 37% upside from Thursday’s close. Citi analysts added this Internet name to their top China stock picks, replacing NetEase. Meituan operates China’s version of Yelp, as well as food delivery, ride-hailing and other consumer services. The company has “proven to be a trusted local service platform partner for merchants and trusted lifestyle app for consumers,” the analysts said. They said similar stock for “strong execution, quick adaptation to the challenging environment and successful rollout of new product services.” Haier Smart Home Price target: 36 Chinese yuan ($5), for a 39% upside from Thursday’s close. Although Citi analysts prefer Hong Kong H-shares over mainland A-shares, Shanghai-listed Haier Smart Home made the list of best stocks to buy. “Growth is mainly driven by [average selling price] on high-end product mix improvement and overseas expansion,” the analysts said, adding that falling commodity prices are boosting profitability. Haier’s overseas revenue grew 13% last year, compared to just 4% in China.
