China’s technology story hasn’t changed enough to guarantee a major change in the portfolio, but local equity investors are encouraged to make a more conservative turn towards the second half. “Beware of the surge in potential volatility over the next month or two,” the team led by Morgan Stanley chief China equity strategist Laura Wang said in a report Thursday. Analysts said sentiment about mainland China’s stocks, known as “stocks,” fell over the past week as Chinese policymakers had been expected at a Politburo meeting later this month, as they had not been able to strengthen growth so far. Furthermore, the US trade contract deadline is looming with most countries on July 9th, with the 90-day tariff ceasefire going to expire in mid-August. Mainland China stocks rose slightly last week, but have been linked more globally, with tech-controlled Hong Kong stocks falling. The dividend continued to support several AI names, while the King of Morgan Stanley recommended “keeping some exposure to dividend yields” on Thursday. One of Morgan Stanley’s recent favourite picks is the Hong Kong-listed Chinese insurance company PICC P&C. Analyst Rick Zhao offered a 4.5% dividend yield and the possibility of benefiting from auto insurance growth in June. Wall Street investment banks traded PICC in mid-June with Pop Mart, the maker of Lovebuto, which is on the focus list in China and Hong Kong. Other local Chinese analysts have also highlighted high dividend plays in the outlook for the second half of the year. “In the midst of uncertainty, our focus is diving into fund flow structure and market style,” UBS Securities China equity strategist Reimen said in a report last Monday. He noted that medium-term and long-term investors support high-ration stocks and banks, which is also supported by the increased state-backed stock purchases. Later this year, Meng expects inflows to slow down into the technology sector after strong allocations for the first six months. Though sentiment from foreign and domestic investors towards tech stocks improved earlier this year against the backdrop of China’s new optimism about artificial intelligence, China’s broader economic growth outlook has settled more. Various performance contrast occurred between individual stocks and key market index performance. Hong Kong’s Hang Seng index, dominated by tech stocks such as Alibaba Group and Tencent Holdings, won around 20% in the first half of the year, while the Shanghai composites in mainland China, include more state-run financial and industrial enterprises – was less than 3%. Also, mainland Chinese investors who value Chinese stocks are mainland Chinese investors who are looking for higher returns than what is commonly available in the country. Their preferred high-yielding strains include Petrocina, which has a dividend yield of 7.3% and CR power, which has a yield of 6.1%. Both are listed in Hong Kong. The growing interest from mainland China investors comes at the same time as facing more restrictions on reaching the US and other markets. In contrast, global institutional investors still view US stocks as the lowest risk and can turn to Europe, China or emerging markets when they need to diversify, says Liqian Ren, head of quantitative investment at WisdomTree. “Other than China, unattractive stocks [such as utilities]She also wouldn’t be where they park their cash,” she said. Ren also noted that several major Chinese AI companies, such as Bay Tedan, are not publicly traded.
