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Morgan Stanley says that Chinese shares are an opportunity right now

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The global investment bank Morgan Stanley has said that Chinese shares could be an investing opportunity right now.

What did Morgan Stanley say about Chinese shares?

The chief investment officer (CIO) of Morgan Stanley’s wealth management, Lisa Shalett, explained that whilst the US share market has rebounded from the concerns about rising interest rates, the Chinese share market has dropped, with one Chinese index being down 14% over one month.

Ms Shalett explained that some investors might be concerned about further weakness in China because of the slowing long-term growth and the possibility of a higher interest rate.

But Morgan Stanley doesn’t think that investors should be worried, indeed it said that the selloff could be a buying opportunity.

China was the only major country in the world to see GDP growth in 2020 and growth this year could be better than some economists are expecting because of two reasons.

One reason Ms Shalett pointed out is that rising US bond yields and inflation expectations supposedly help stem the dollar’s weakness against the Chinese currency, which is a potential positive for Chinese exporters.

The other reason is that a high level of demand and high level of household savings in China could lead to consumption growth of 8% to 10% over the next two years, according to an independent research organisation called Alpine Macro.

Another point to remember is that whilst the northern hemisphere (and Australia) have unleashed huge amount of stimulus to boost the economy, China only provided stimulus equivalent to 1.5% of GDP. This should mean there won’t be much of an ecominic drag in China as the stimulus ends.

Ms Shalett also said that Chinese real yields have already moved in solidly positive territory, which may negate the need to raise interests in the short-term. The country also has a large amount of oil in stockpiles so it shouldn’t suffer as much from higher oil prices this year.

The bottom line

The Morgan Stanley CIO’s final thoughts on Chinese shares were as follows:

We recommend that investors consider using emerging-market weakness as an opportunity to add to China A-Shares, which are more leveraged to global pro-cyclical and value themes than expensive tech and social media names.

How to invest in Chinese shares?

Obviously there aren’t any large Chinese shares that you can invest directly into on the ASX.

However, there are some exchange-traded funds (ETFs) that do offer exposure to Chinese shares. For example, Betashares Asia Technology Tigers ETF (ASX: ASIA) – which is down almost 20% since the middle of February 2021 – gives exposure to plenty of Chinese shares.

Some of its Chinese holdings include Tencent, Meituan, Alibaba, JD.com, Pinduoduo, Netease, Baidu, Ke Holdings, Bilibili, Vipshop, Alibaba Health Information Technology, Autohome, GDS and Tencent Music Entertainment.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BetaShares Asia Technology Tigers ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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