3 undervalued sectors that could rebound in 2024

Alice Shen: Thanks for having me, Ally. 

Alice Shen: To us, it's actually pretty simple. We would need to see more coordinated efforts from the government to stabilise capital markets. So far we've seen the country's national team trying to buy up the stocks to hold the equity market, but then we need to see more policies to address the structural long-term issues in the economy.

Alice Shen: At the moment, Chinese equities are on sale. It is trading below 10 times forward P/E. Whereas if you look at the developed markets, broadly speaking, it is around 18 times forward P/E. And even within Asia, if we look at some of the favourites last year, such as India and Japan, they are already trading at 20 times forward P/E. So to us, it could be a crowded trade already, and we think China, on the other hand, could offer more value and potential upside this year.

Alice Shen: As China continues to move up its manufacturing value chain, we think that investing in 'new economy' sectors in China would open up more opportunities for investors. We've seen over the past few decades that China has really changed the consumption patterns from the consumer point of view, and also they are looking into more high-value tech investments as well. So we think that investing in new economy sectors could add more upside to investors' portfolios.

Alice Shen: To us, I think the macroeconomic environment is getting more accommodative and we believe that there are a couple of sectors that can benefit from this. Our first pick is the IT sector. We are cognisant of the geopolitical risks this year, particularly the US election later this year, but we do like the industrial upgrade theme in areas such as the EV supply chain. Also, the new energy sector and semiconductors as well. We think that these sectors will continue to contribute more towards the country's GDP growth and we are constructive on the long-term outlook of the IT sector.

Alice Shen: The third sector that we like is consumption-related names. While Chinese consumers are becoming more and more selective, we think that they are still willing to spend on experiences, leisure, and also travel. So we think for 2024 domestic tourism and transport-related stocks could still benefit from major holidays in China.

Alice Shen: There are some similarities between China now and Japan in the 1990s, be it the demographics and also the asset bubbles. But I think the government is trying to do whatever it can to bring the economy back on track. They still have silver bullets on the monetary side and also the fiscal side. So, we could potentially see more easing coming later this year. And I think one of the measures that's being discussed quite popularly is cash handouts to consumers. While it is unlikely, we think that it'll still boost consumption sentiment going forward.