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Bet on Large Caps in China with Profits and Cash: Pro

Keren Su | China Span | Getty Images

GDP growth is slowing in China, but some investors believe large cap stocks with exposure to the country are still safe bets.

The market volatility surrounding the upcoming Chinese leadership change creates an opportunity to find the right long-term investments, Saira Malik, managing director of equity investments at TIAA-Cref, told CNBC's "Squawk Box".

"As we move through the transition of power in China, it's going to be crucial to put the right reforms in place in order to accelerate growth," said Malik. "If they're successful in this, then China could be the final piece in a revival of global equities as U.S. macro data remains strong, Europe stabilizes, and we get through the fiscal cliff."

Companies with strong free cash flow and profitability are at the top of TIAA-Cref's list, said Malik.

She pointed to fast food restaurant operator Yum! Brands as an example. Yum! earns 45 percent of its profits from China, primarily from its KFC chains, and has $1 billion in free cash flow. The company benefits from strong pricing in China during a period of low inflation, which has driven 15 percent growth in profits, said Malik.

TIAA-Cref is also focusing on companies with an edge in China that will help them perform in the long run.

Market share is computer manufacturer Lenovo's edge, said Malik. The company is number one in personal computers and number two in mobile sales. With strong growth in both segments, Malik believes the company can leverage its margins.

Malik also likes Samsonite, which she says is capitalizing on increased global travel and its healthy balance sheet to leverage its international presence and acquire companies such High Sierra Sport Company. Samsonite has increased sales in China by 35 percent in the first half of 2012, according to the company's interim report.

With China's GDP growth slowing to 7.4 percent in the third quarter, from 9.1 percent in the same period in 2011, the years of double digit growth are likely over, said Dinakar Singh, CEO of hedge fund TPG-Axon Capital, but opportunities still exist for investors looking for value.

"I think there's an investor expectation issue," said Singh. "If you're betting on a big rebound and stimulus effort, you're going to be disappointed. But there are a lot of stories that are cheap because the valuations have fallen in half from where they were a couple of years ago."