China Stocks Appeal Amid its Efforts to Boost Capital Markets, Fidelity International Says

By Alice Uribe

SYDNEY--Fidelity International is optimistic about China equities, given favorable trends in domestic bond yields compared with the U.S. and recent moves by Beijing to support the stock market.

The asset manager has been allocating more capital to China recently by purchasing specific stocks, rather than changing the overall positioning of its funds. Most of the funds currently have an either neutral to slightly overweight position, said Marty Dropkin, Fidelity International's head of equities in the Asia-Pacific region.

China's State Council this month unveiled a roadmap for boosting capital markets, calling for tougher new listing rules and more dividend payouts. Earlier steps included encouraging state-linked firms to buy shares. Beijing's efforts follow years of declines by its stock market, which missed out on widespread rallies that included bull runs in the U.S. and Japan.

Sectors that appeal to Fidelity International include healthcare and technology, including semiconductors. That means the fund manager is exposed to broad trends created by China's aging population and the global AI boom.

"There's a lot of very attractive stocks in China at this point, with good earnings potential, good free cash flow," Dropkin said but added that this theme may take time to play out and investors may need to be patient and invest beyond the short term.

On fixed income, Dropkin said yields in China were much lower than they are in the U.S., a trend he doesn't see reversing any time soon. That could be a tailwind for the Chinese market, he said.

Domestic bonds were also trending better than U.S. Treasurys whose yields have bounced on fresh uncertainty over the timing of interest-rate cuts, Dropkin said.

He also sees Japan as an emerging parallel with China where shareholder returns have improved over the past 18 months.

"We've got some good market confidence that's come back into Japan," which should be relatively sustainable, Dropkin said. In the last couple of months that positive sentiment has also begun to show in China, he added.

More broadly, Fidelity International's portfolios have leaned toward defensive positions, which Dropkin felt may have been working against it recently. But these headwinds now appeared to be reversing.

Write to Alice Uribe at alice.uribe@wsj.com

(END) Dow Jones Newswires

April 24, 2024 00:19 ET (04:19 GMT)

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