Chinese concept stocks embrace tactical investment opportunities, especially Alibaba?

Investment companies that adhere to the value investment philosophy often venture into markets that others doubt, and now this has made China a natural destination.

Experienced buyers who buy on dips believe that the Chinese government will continue to work towards stabilizing the economy, which is enough to create a tactical opportunity in the market.

So far, this information has not resonated with the market. Year-to-date, the MSCI China ETF-iShares (MCHI) has fallen by 5%. But this provides ample opportunities for patient buyers who hope to profit from the recent stabilization of the world's second-largest economy.

Some positives for Chinese concept stocks

For some emerging market veterans familiar with the volatility of developing markets, the low valuations of certain sectors in the Chinese stock market are quite attractive.

Arjun Divecha, founder of GMO Emerging Markets Equity, said, "Normalization of Chinese demand will happen, and if you look at car sales, you will see some signs that this is starting to happen."

BCA Research analysts emphasized signs of economic stabilization. Credit growth in China improved in August, and deflationary pressures that appeared earlier in the summer have eased. CPI rose 0.1% YoY, better than the 0.3% decline in July.

Louis Lau, Investment Director at Brandes Investment Partners, said that he is already looking for opportunities in internet stocks, life insurance companies, sportswear manufacturers, and the solar energy supply chain.

Henry Mallari-D'Auria, Chief Investment Officer for Ariel Global and Emerging Market Equities, believes that recent policy measures have laid the foundation for restoring consumer confidence and have shown some signs of real estate stabilization.

Positive for Alibaba

This improvement will benefit companies like Alibaba. Mallari-D'Auria believes that Alibaba can be a winner in multiple ways, "There is a cyclical rebound, but the company is also undergoing self-restructuring," he said.

So far, Mallari-D'Auria believes that Jack Ma's departure will not change the profit growth prospects of Alibaba's core business or the timeline for departmental restructuring.

The spin-off will help with valuation, but recent catalysts may come from signs of recovering consumer confidence. The company's recent cost-cutting measures will also be helpful.

Although Mallari-D'Auria expects Alibaba's valuation to not return to its peak level, he said that with increased confidence, investors can still achieve good returns even if the stock's P/E ratio rebounds from the current undervalued 9 times to 11 or 12 times.

Additionally, Mallari-D'Auria said that if consumers feel better about their prospects, car sales may recover.