China Stocks Are No Longer a Sure Thing. Where to Invest Now. -- Barrons.com

"Ultimately, it's not a level playing field. We have a new love for state-owned enterprises," says Jain, who is gravitating toward companies whose growth is slower but dependable, and are priced accordingly. That includes China Merchants Bank (60036.China) and China Construction Bank (601939.China).

Matthews' Horrocks is focusing on the domestic champions that China is trying to build in healthcare, financials, and consumer-oriented sectors. One holding in the Matthews Asian Growth & Income (MACSX) fund, where he is the lead manager, is AIA Group (1299.Hong Kong), a leading life insurer in Asia with a high-caliber distribution force.

Another area of focus for Horrocks: companies in areas that require elevated levels of research and development, like high-end biomedical and pharmaceutical products. Government intervention, such as price controls, could be counterproductive in those areas, since it could curtail innovation.

Others are gravitating to semiconductor, hardware, and industrial companies that stand to benefit as China tries to reduce its reliance on foreign companies and invests to maintain a leading position in clean technologies. Driehaus' Schwab has been buying more companies like Suzhou Maxwell Technologies (300751.China), which makes equipment for the solar industry.

Philip Wool, who manages the Rayliant Quantamental China Equity exchange-traded fund $(RAYC)$, has been looking for cheaper ways to benefit from the focus on renewables, including YongXing Special Materials Technology (002756.China), a steel maker that also has a fast-growing lithium carbonate business, which used in electric-vehicle batteries.

Many of the companies that stand to benefit from China's next phase of growth are domestically-oriented, says Matthews' Horrocks. And the sectors that excite investors now account for roughly just a quarter of the MSCI China index, according to Morgan Stanley's Kandhari.

One thing is clear. "Investors need to tread more carefully than in the past," says Leverenz, the Invesco fund manager.

Write to Reshma Kapadia at reshma.kapadia@barrons.com

$(END)$ Dow Jones Newswires

August 19, 2022 02:29 ET (06:29 GMT)

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