A quantitative fund managed by Pacific Investment Management Co. (PIMCO) has successfully navigated China's declining stock market and is now setting its sights on undervalued tech behemoths.
Chris Brightman, the chief investment officer at Research Affiliates LLC who co-manages several PIMCO funds, stated that the fund is considering adding positions in these companies as their valuations have become more attractive. This shift in strategy comes after a prolonged period of regulatory scrutiny that has significantly lowered the market values of internet platform companies like Alibaba Group Holding Ltd. (9988) and Tencent Holdings Ltd. (0700, Financial), making them appealing investment opportunities. These firms have also been impacted by slower growth rates and fierce competition.
Brightman's perspective is shared by others in the investment community, with some funds starting to buy shares in China in anticipation of a market rebound. The recent uptick in Chinese equities and signs of economic recovery are fueling optimism that the market may be reaching a turning point.
The PIMCO RAE Emerging Markets fund, boasting $1.6 billion in assets, has outperformed 94% of its peers over the last year, according to Bloomberg data. This success is attributed to its quantitative investment model, which focuses on factors such as book value, sales to earnings, cash flow, and dividends. The fund has significant investments in Chinese companies, including China Construction Bank Corp. (0939, Financial), Bank of China Ltd. (3988, Financial), and PetroChina Co. (0857).
Brightman also noted the comparative attractiveness of Chinese stocks against more expensive markets, such as India, highlighting the potential value to be found in China's current market conditions.
Despite the promising signs, the future of China's stock market remains uncertain. The country is grappling with deflationary pressures and a persistent property crisis, while also facing challenging international relations, particularly with the United States. However, Brightman believes that the potential rewards from investing in Chinese stocks outweigh the geopolitical risks involved.
