Credit Suisse says it's time to pivot to China, and names 6 global stocks to buy

Published Thu, Feb 3 20226:35 PM ESTUpdated Fri, Feb 4 20221:49 AM EST

Credit Suisse has turned more positive on China and has picked six global stocks that it expects to benefit from Chinese economic momentum. The investment bank upgraded China to an "overweight" in a note to clients in late January, on the back of a loose monetary policy, a pickup in economic activity, cheap valuations, and the expectation that regulatory uncertainty will soon ease. "There are early signs of China PMI [purchasing managers' index] new orders turning up," analysts at Credit Suisse said. "If China PMIs rise relative to global PMIs, then China's relative performance should start to improve. Our economists forecast 5.9% GDP growth this year versus consensus of 5.2%," they added. This economic backdrop has in the past supported Chinese equities to push higher, the bank noted, adding that the current Chinese environment is also making certain global stocks — outside China — more attractive. "We would recommend mining and life insurance," Credit Suisse said, adding that "the copper price is very correlated to China PMIs and half of industrial commodity demand comes from China." As such, the bank named BHP Group , Rio Tinto , Glencore and Anglo American as stocks likely to benefit from China's economic momentum. In terms of life insurance, Credit Suisse mentioned Prudential as another favorite, given the company "now generates the vast majority of its revenues from Asia" and trades at a discount from local peers. In addition, Credit Suisse also highlighted Prosus , a Dutch investment group, as a stock pick. This is because the company owns 29% of Tencent , the Chinese tech firm, and is currently trading at a discount as well, according to Credit Suisse. Prosus is "a liquid and diversified means of gaining exposure to the China tech sector," Credit Suisse said. Caution on luxury stocks On the other hand, Credit Suisse also had a word of caution on luxury stocks. Although the sector tends to outperform when the Chinese economy is strong, Credit Suisse has raised a number of concerns. "We worry as above that 80% of Chinese household wealth comes from real estate, and real estate prices falling is unhelpful," analysts said, pointing to a potential deceleration in luxury stocks and wealth if real estate prices decline. The investment bank also said that "unlike other China plays, valuations for luxury are clearly extended" and the sector is "vulnerable to rising bond yields."

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Credit Suisse has turned more positive on China and has picked six global stocks that it expects to benefit from Chinese economic momentum.