How to invest in China as the economy slows down. We asked 20 strategists

Published Mon, Oct 18 20217:15 PM EDTUpdated Mon, Oct 18 202110:39 PM EDT

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