The Tensions between the two are prevalent in many fronts, including the financial markets after the Senate passed a bill aimed at Chinese companies listed in the U.S. power plants have also clashed over China’s national security law to Hong Kong, which has prompted President Donald Trump to announce that the UNITED states revoke the Asian financial hub’s special trading status.
In spite of these developments, there are still areas of the market where investors can find opportunity. Here’s how investors should trade Chinese stocks in the middle of these tensions, according to analysts.
Focus on Chinese shares
The investment bank Morgan Stanley recommends an overweight on Chinese shares, or shares that are traded on the continent index. The assessments within these stocks tend to decline less in response to U.S.-China tensions, said the investment bank.
“The A-share market is very limited to the foreign ownership of the representation,” said Morgan Stanley. It is only about 4% of the market capitalization of the shares of stocks, compared to less than 35% for the MSCI China index, he said.
MSCI China a shares in the index, but also includes the H-shares that are traded on the stock exchange of Hong Kong, as well as U.S. listed Chinese companies.
Be selective in picking U.S.-listed Chinese companies
The Senate bill passed last month could essentially ban many Chinese companies from listing on U.S. stock exchanges.
It would require companies to certify that they are not owned or controlled by a foreign government and to submit to audits by the regulatory authorities in the U.S. for three consecutive years. Companies should be prohibited in trade, if they do not meet either requirement.
Morgan Stanley has warned investors on the companies with high foreign ownership, but are not eligible for a secondary distribution in Hong Kong.
“They are faced with greater uncertainty as to the cancellation of the list as a result of ongoing efforts … in accounting or auditing for compliance,” he wrote in a report last week.
Hong Kong has been making it more attractive for companies listed elsewhere to have a secondary listing on the stock exchange. But there are some criteria: for example, technology companies and innovation are registered for at least two years on the New York Stock Exchange or the Nasdaq to qualify.
Analysts have predicted that the risk of being delisted in the UNITED states by car, many Chinese companies flocking to Hong Kong.
Which will be positive for the shares of Hong Kong Exchanges and Clearing, Citi Research analysts said in a report last week. That could lead to an increase of 10% in the results, the analysts have said that, in his note reiterating a ” buy ” rating.
Increase in exposure to consumption stocks
The economy of china has been among the first to open, lift restrictions and allow residents to resume activities outside their homes. The standardization of the social activities ” remain on track “, said Morgan Stanley.
The bank has raised its rating for the consumer durables stock to “equal weight,” an indication that he expects those stocks to perform in line with its peers. The investment bank explained that it expected less downward pressure on wages for the industries related to consumption and services.