Are Chinese tech stocks a value trap? This expert says ‘no’

on Nov 30, 2022
  • Morningstar's Dan Kemp sees opportunities in Chinese growth stocks.
  • He explained why this morning on CNBC's "Squawk Box Europe".
  • iShares MSCI China Multisector Tech ETF is up nearly 30% versus Oct.

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Chinese stocks sure look risky at present as protests against the zero Covid policy spread across the authoritarian state.

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Still, Dan Kemp – the Chief Investment Officer of Morningstar recommends that “long-term” investors pick up exposure to the Chinese growth stocks here at a discount.

There are some wonderful companies in China, particularly in tech and communications that didn’t benefit in the same way as the U.S. tech stocks over the last couple of years. So, now they’re quality growth companies at very low valuations.

Avoid being too bullish though

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iShares MSCI China Multisector Tech ETF is already up nearly 30% versus late October but Kemp is convinced that’s just the tip of the iceberg.

That’s a bold call considering Beijing is reporting record number of infections every day, making it all the more difficult for investors to assess how long China will take to come out of the COVID lockdowns.

To that end, Kemp does advocate caution. On CNBC’s “Squawk Box Europe”, he recommends getting “some” exposure to China but avoiding going all in.

There has to be an expectation of very low outcome from these stocks as well. So, the capital you put to work in China is incredibly important. You can’t be too bullish, but at these valuations, it still looks like good value to us.

Why take the risk with Chinese stocks?

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Kemp is particularly interested in the Chinese tech stocks because he still sees the also beaten-down U.S. equities as only fairly valued now versus grossly overvalued at the start of 2022.

Compared to the United States, the Chinese stocks are an absolute treat, he added. “TCHI” is still down nearly 30% for the year.


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