As the U.S. 10-year Treasury yield climbs on Fed rate hike expectations, HSBC analysts said they've found a historical pattern of mainland Chinese stocks that can outperform during such transition periods. The turning point — as defined by a peak in the 10-year yield — will likely come in the second quarter, the analysts said in a report Tuesday. To play the trend, the analysts have identified five stocks likely to perform well in the near term, and five expected to perform better later on, after the 10-year yield peaks. That's on top of HSBC's optimistic turn on Chinese stocks earlier this year with a forecast of between 9% and 17% in annual gains. Below, CNBC has highlighted one stock from each of the two categories, in addition to one with the highest projected gains. A construction stock set to double The analysts expect one of their near-term stock picks can double in price. China State Construction Engineering Corporation, or CSCEC, is the largest engineering and construction company in the world. The analysts expect the company will "gain market share continuously due to its strong execution and low cost base." The stock trades around 5.46 yuan, leaving 105% upside to reach HSBC's price target of 11.2 yuan. However, the company faces risks from further government restrictions in the property market and a slowdown in infrastructure investment, the report said. In the last two years, China has cracked down on real estate developers' high reliance on debt for growth. Since the high-profile default of Evergrande last year, authorities have eased some restrictions on the industry. Meanwhile, as China's growth slows, analysts generally expect more stimulus later this year, including support for infrastructure development. Wens Food Another stock likely to perform well in the near term is hog producer and meat products company Wens Food, according to HSBC's analysis. The stock has about 14% upside to the bank's price target of 25.1 yuan a share. "We expect the market share of industry leaders with cost advantages to grow, as a result of higher hog production on continued capital expenditure backed by healthy cash flow," the report said of Wens. In a separate thematic report this month, HSBC analysts forecast a decline in hog prices by 3 yuan per kilogram this year from last year, helping to boost profitability for the meat product industry. China's duty-free store operator In the longer term, from the second quarter on, the bank is betting on a Chinese consumer play for growth. China Tourism Group Duty Free Corporation is the state-owned operator of duty-free stores in China, including Hainan, which has become an alternative destination for luxury goods shoppers who can't travel abroad. The analysts predict the stock can rise to 310 yuan a share, for an upside of 38% from Monday's close. "We expect CTGDF to maintain its dominant position, due to its widespread sales channels, strong operations, synergy with its major shareholder, as well as the government's intention to expand the market," the report said. "We will become more optimistic about the company's competitive advantage once outbound travel resumes." Luxury spending has held up in China despite an overall slump in retail sales since the pandemic began. Sales of personal luxury goods in mainland China reached 471 billion yuan ($73.59 billion) in 2021, up by 36% from the prior year, according to Bain & Company. This category of consumers looks set to spend more on luxury this year. HSBC's survey of about 2,000 wealthy mainland Chinese residents in December found that existing luxury consumers plan to buy more this year, while about 60% were planning to make their first luxury purchase this year. — CNBC's Michael Bloom contributed to this report.
Customers purchase handbags at a duty-free shop on China's National Day on October 1, 2021 in Haikou, Hainan Province of China.
Luo Yunfei | China News Service | Getty Images
As the U.S. 10-year Treasury yield climbs on Fed rate hike expectations, HSBC analysts said they've found a historical pattern of mainland Chinese stocks that can outperform during such transition periods.
The turning point — as defined by a peak in the 10-year yield — will likely come in the second quarter, the analysts said in a report Tuesday.
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