From telecommunications to real estate, Morningstar sees potential in some Chinese stocks — even as market valuations are becoming more expensive and the prospect of tighter monetary policy around the world rises. Lorraine Tan, director of equity research in Asia at Morningstar, told CNBC's "Squawk Box Asia" that the firm is looking to add to its portfolios stocks that are "a little bit more defensive" as well as those with "sustained dividends that can be grown." Telecoms One such area is in Chinese telecommunications stocks, in particular China Unicom , according to the analyst. "The reason why we sort of looked at China Unicom was because of the cloud business," she explained, adding that the country's three telcos have large cloud services businesses that are "probably underappreciated right now." "They're not really benefiting from the high valuations that you see for more specific cloud companies," said Tan. China's telecommunications space is dominated by China Telecom , China Mobile and China Unicom. Real estate Despite contagion fears from debt-ridden China Evergrande Group , there are still good quality companies in China's property sector, Tan said. "There are still some aspects of the real estate space that are still positive," she said, explaining that Beijing's crackdown on debt in the sector is part of efforts to "clean up the space" and keep the situation stable. Seeing an inevitable consolidation in the sector, Tan identified China Resources Land and China Vanke as two beneficiaries from the trend. "We're looking at companies with scale, with very strong balance sheets," she said, adding that the companies' nationwide presence would mitigate risks at the provincial level. Energy High oil prices could be a boost to one Chinese energy stock. Morningstar likes oil firm CNOOC in the energy space, which Tan described as "particularly undervalued." "It's just a very well managed, efficient upstream oil producer and we think oil prices will stay at the current high levels or at least around the $70 range for the next 12 to 18 months," she said. Oil prices have surged so far this year, with international benchmark Brent crude futures up more than 50% for the year as of Thursday Asia time. It comes as major economies like India and China are seeing an energy crunch, while crude demand soars as economies bounce back after last year's pandemic-induced slump.
From telecommunications to real estate, Morningstar sees potential in some Chinese stocks — even as market valuations are becoming more expensive and the prospect of tighter monetary policy around the world rises.