China's economic prospects have dimmed on the back of widespread regulatory crackdown, Evergrande's debt crisis and a worsening power crunch . CNBC surveyed 20 market strategists and asked them if Chinese stocks and bonds are still worth investing in. On Monday, China said its economy grew 4.9% in third quarter from a year ago — missing the 5.2% expansion that analysts in a Reuters poll had expected. It comes as major banks in recent months slashed their 2021 economic growth forecasts for the world's second largest economy. About the poll CNBC's survey took place via email from Sep. 28 to Oct. 18. The respondents answered questions on how they're investing in China given the challenges in the economy, as well as their investment horizon. The strategists — all based in Asia or Europe — were offered anonymity in exchange for their views. Of the 20 strategists surveyed, 11 said they were neutral or underweight toward Chinese stocks and/or bonds. All cited near-term uncertainties from regulatory tightening. The remaining nine strategists said China is still attractive. Six of them said they liked Chinese assets despite the weaker outlook, while three said they're long-term investors who would be able to ride out the current uncertainties. Bears: Cutting China exposure Among the 11 who said they were neutral or underweight, six said they downgraded their China positions this year. One of them said he moved China from overweight to underweight around June or July, and reduced exposure to both Chinese stocks and bonds. The person said changes in government policies could lead to better welfare for workers and higher compliance costs for data — but it would also reduce companies' pricing power and squeeze corporate margins. "To become more positive, we would like to see evidence that current regulatory cycle has bottomed, which it eventually will," he said. He added that he avoided the real estate sector, preferred insurance to banks, and stayed selective on long-term opportunities in technology. Another strategist, who downgraded his position to neutral in July, said investors should avoid sectors such as property, health care and internet — which have been targeted by regulators. But as share prices fall, investors could buy into sectors that face less policy uncertainty, such as green technology, consumer durables and energy, he said. Mainland markets look "more appealing" than Chinese stocks listed overseas, he added. Some of the strategists polled saw better investment opportunities outside of China, especially after mainland stock markets had a strong 2020. "China was leading the rest of the global economy in the recovery from COVID-19 crisis and has moved past the initial snapback surge phase, while there was more room for growth to recovery in other [developed] markets such as Europe and Japan," said one strategist. She downgraded Chinese stocks to neutral earlier this year. Bulls: More opportunities now Others said China continued to offer attractive investment opportunities. One strategist said he turned more optimistic on China in the fourth quarter. He explained that slowing economic growth could prompt Chinese policymakers to loosen fiscal and monetary policies — and potentially even slow down regulatory tightening. "Don't forget that assets have primarily been driven by monetary and fiscal policy since COVID (and even prior)," he said. Another said there were many opportunities in the bond market given a "massive price dislocation," particularly in the high-yield segment. Price dislocation refers to a situation in which financial markets are under stress and fail to price assets appropriately. "There are more investment opportunities in China credit and we would start [to] deploy more cash now," she said. Positive in the long-term Regardless of their current exposure to China, nearly all the strategists surveyed said they were more positive about investing in the Asian economic giant in the medium- to long-term. One of the respondents said policy changes in China were generally aimed at improving business practices in various industries, and that better-run companies could still deliver "decent" earnings growth even in the face of regulatory changes. Three strategists pointed out that China will remain a major growth engine for the global economy for many years to come. As such, investors should have some Chinese assets in their portfolios, they said. One of them said he's focused on consumer discretionary, health care and information technology as beneficiaries of government policies in the long term. "We always take a long term view when it comes to investing in China as we see investing in China being a core strategy approach and investors should always have an allocation to China given its strong position in the global economy," he said. — CNBC's Naman Tandon, Gabrielle See and Celestine Francis Xavier contributed to this report.
The Chinese flag floats before the skyscrapers of multinational corporations on February 23, 2018 in Shanghai, China.
Vincent Isore | IP3 | Getty Images
China's economic prospects have dimmed on the back of widespread regulatory crackdown, Evergrande's debt crisis and a worsening power crunch. CNBC surveyed 20 market strategists and asked them if Chinese stocks and bonds are still worth investing in.
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