Singapore's top lender picks Chinese stocks for 'bottom fishers'

Published Tue, Sep 7 202111:00 PM EDT

Singapore's top lender DBS has identified Hong Kong-listed Chinese stocks that are "likely to offer good risk-reward" following a recent sell-off in the market. In a note published early September, DBS Group Research's Dennis Lam and Byron Lam said the Hong Kong market is "generally trading at a low valuation." As of its Tuesday close, the city's Hang Seng index was down more than 3% for the year. "The non-stop regulations and state-owned media commentaries in various industries, including technology, entertainment, healthcare and living, have led to a technical bear market in HK ," the analysts said. Meanwhile, dovish U.S. Federal Reserve taper discussions have sent the U.S. market to new highs, further widening the gap with Hong Kong. "We concur that regulatory risks warrant a discount on the HK market, but everything has a price," they said. "Given that the market is already keenly aware of the approximate scope of regulatory scrutiny, the market's sensitivity towards this news will lower, in our view." The analysts said uncertainties are easing in the Chinese technology sector, which has been under the regulatory spotlight for months. Shares of tech giants like Meituan and Tencent briefly dropped in August but later recovered to finish the month higher, rising 15.8% and 0.46%, respectively. Citing a 2018 crackdown on Tencent's video game approvals, the DBS analysts said the company's stock price started to rebound within a month or two as more details emerged. "Despite the more intense scrutiny this time, we reckon the same pattern should recur. Bottom fishers are raring on the side-lines and risk appetite for tech companies is likely to improve when clearer rules and regulations are introduced," they said. Tencent and fellow tech behemoth Alibaba are two Chinese tech stocks that DBS currently has in its list of top buys. DBS issues a buy rating to small cap stocks it sees having more than 15% total return over the next 12 months, or greater than 10% if they're large caps. In the case of Tencent, the analysts said the regulatory risk on the firm has likely eased following the recent implementation of rules limiting the number of hours people under 18 in China will be allowed to play online video games . Meanwhile, Alibaba replaced Meituan on the list due to the "divergent performance" of the two stocks in the past month, with the former seeing a more than 12% drop in August against the latter's nearly 16% surge. Other stocks on the list of top buys include paper manufacturer Nine Dragons Paper , which DBS projects will report strong earnings in late September that would help support its share price. The bank's pick in the auto sector is Guangzhou Automobile Group , while Country Garden Services and Ping An Insurance were also added to the overall list of top picks.

The business district in Hong Kong.

alexsl

Singapore's top lender DBS has identified Hong Kong-listed Chinese stocks that are "likely to offer good risk-reward" following a recent sell-off in the market.