3 undervalued sectors that could rebound in 2024

Could the "Year of the Dragon" bring good fortune to these sectors? Watch the video below to find out.
Ally Selby

Livewire Markets

Despite the risks that still remain in the region, Chinese equities are currently on sale and are now attractive. 

That's according to VanEck Australia's Alice Shen, who argues that compared to developed markets (trading on around 18 times forward P/Es) and even locally within Asia, China (on a 10 times forward P/E) now offers greater potential for upside in 2024. 

In fact, Shen believes that "the macroeconomic environment is getting more accommodative" and a few sectors, in particular, could benefit. 

"The government is trying to do whatever it can to bring the economy back on track," she explained. 

"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." 

In this episode of The Pitch, Shen outlines what needs to happen for the Chinese equity rebound that we have witnessed over the last few weeks to be sustained, and outlines three sectors that she believes could benefit from here. 

Note: This interview was filmed on Tuesday 13 February 2024. You can watch the video or read an edited transcript below.

Edited Transcript 

Ally Selby: Hello, and welcome to The Pitch brought to you by Livewire Markets. I'm Ally Selby, and today we're joined by VanEck Australia's Alice Shen for a look at three sectors she believes could be in for a rebound in 2024. Thank you so much for joining us today, Alice. Really excited to feature you on the show.

Alice Shen: Thanks for having me, Ally. 

Ally Selby: Okay. We've seen Chinese equities rebound around 6% over the last week. What do you think needs to happen for that to be sustained?

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.

Ally Selby: Okay. And how do valuations compare to China's global counterparts?

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.

Ally Selby: Should investors focus on new economy companies or old economy companies when investing in this region?

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.

Ally Selby: Okay. What three sectors do you believe could be in for rebound in 2024 within China?

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.

The next sector, which is probably less talked about, is some of the healthcare stocks such as pharmaceutical and biotech companies. They have very strong innovative drug pipelines and they could benefit from overseas business expansion in 2024. There are quite a few healthcare stock buybacks in the Asia market recently, and valuations look very attractive.

Ally Selby: And what's the third sector that you believe could rebound in 2024?

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.

Ally Selby: There's a lot of value in China right now. Is there a risk though that it could follow a similar path to Japan in the 90s?

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.

Ally Selby: Okay. Well, thank you so much for your time today, Alice. I enjoyed this chat. If you enjoyed that too, don't forget to subscribe to Livewire's YouTube channel. We're adding so much great content just like this every single week.

China is the second largest economy in the world and presents an investment opportunity too big to ignore. Find out more about how you can access this opportunity via VanEck Exchange Traded Funds (ETFs) here. 

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Ally Selby
Deputy Managing Editor
Livewire Markets

Ally Selby is the deputy managing editor at Livewire Markets, joining the team at the end of 2020. She loves all things investing, financial literacy and content creation, having previously worked for the likes of Financial Standard, Pedestrian...

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