Emerging markets guru says ‘Time to shop hidden gems at a steal’ as he sees opportunities in bruised Chinese and Hong Kong stocks

Source: Benzinga

“I’m not predicting that, but I think people are starting to look at the valuations and starting to think maybe there’s going to be a good opportunity there,” the investment manager said.

Researching the criteria for stock screening, Mobius said his company uses return on assets and return on capital, which he described as very important. He also said he would look at increasing earnings per share.

“We like companies with low debt,” Mobius said.

“Some of the stocks in China and Hong Kong are starting to hit on some of those criteria.”

See also: Best Chinese stocks

Mobius also disagreed with the view that the weakness in Hong Kong and China is due to the Chinese authorities’ problems with their messaging to global markets. “Chinese officials are trying to regain their confidence,” he said.

“At the end of the day, it is Chinese investors who drive the Chinese market, not foreign investors, so the first order of business will be to instill confidence in the minds of Chinese investors.”

Mobius sees a return of confidence among Chinese investors once the housing crisis ends, but warned it will take some time. He said Chinese investors have a lot of money in their property more than in the stock market. If the real estate situation improves, then money will flow into the stock market, he added.

Given the troubled property market and deflation in China, the appropriate strategy for domestic investors is to track the US interest rate, the fund manager said. The possibility of a rate cut by the Fed is positive for emerging markets in general, but also for China, as one of the problems is the higher interest rates that Chinese real estate investors have to deal with.

EM Index Vs. Individual shares: Mobius said it would not buy an emerging markets index, but would look at individual markets. The emerging market index is performing so badly because of China, he said. Even if you consider an index, it should be an emerging market index, excluding China, he added.

But Mobius warned of the downsides of leaving China out. “China can rise and then you lose that opportunity. But I pick individual stocks to begin with,” he said.

While sharing the interview on X, ex-Twitter, Mobius further elaborated on his views. “As the Chinese proverb says, ‘where there is risk, there is opportunity,’ every time a stock market takes a dive, one thing comes to mind: time to go shopping for hidden gems in a steal,” he said.

“With the Hong Kong market at a multi-year low, I’m starting to see value in some local stocks.”

Why it’s important: China, one of the biggest drivers of global economic growth, was further hampered by the stock market slump. Sensing the looming danger, Chinese authorities have orchestrated their willingness to implement measures to prop up the falling stock market.

Chinese large-cap stocks listed in the US such as Alibaba Group Holding Ltd. DAD, JD.com, Inc. JD, Baidu, Inc. BIDUand Tencent Holdings Limited TCEHY took a hit even before the domestic stock market crashed.

Threatened by the massive scale of operation of these companies, the communist regime took steps to rein them in as they appeared to monopolize the business areas in which they operated. Alibaba, for example, has been feeling the pressure since mid-2020.