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Declining foreign investment and a prolonged real estate recession are just some of the issues putting pressure on China’s economy and stock market. However, things may be about to turn around for the Asian powerhouse after months of deflation, with consumer prices rising 0.7% year-on-year in February. Factory activity in China also expanded for the third consecutive month in January. Stock markets are also recovering, with the Shanghai Composite Index, which hit a five-year low in early February, up more than 6% in the past month to more than 3,000. One portfolio manager said the move, which follows a series of government stimulus measures, has once again made China an attractive destination for investors. “China has been a lot more fun this year than in previous years,” Kamil Dimich, partner and portfolio manager at North of South Capital, told CNBC’s “Squawk Box Asia” on Monday. “We’ve been looking for value. We’re still relatively underweight in China, but we’re reducing that underweight.” [as] Sean Lane of China Market Research Group said while it may be time to start building a positive case for China, “it may not be the time to be very bullish yet.” “Let me be clear: China’s economy is weak, but it’s not that weak,” the group’s founder and managing director told CNBC’s “Squawk Box Europe” on Monday. To drive growth over the next three to five years, China is next. It’s not India, India is only 1/6th of China’s GDP. It’s not Vietnam. These are small markets. So I actually think investors should look at China long-term again, and China is definitely investable,” he said. “Consumers are still nervous about the economy, so trading is “We expect it to decline,” he said, acknowledging some short-term risks. He cited footwear brands Salomon and Arc’teryx (both owned by Finnish retailer Amer Sports and listed on the New York Stock Exchange) as having good exposure to the Chinese market, and spending in areas such as health and wellness. He said he expected this to continue. When picking Chinese stocks, Dimich said, “I usually like companies that have a strong position in the market, that have some kind of pricing power.” [and] “We own a number of consumer-related stocks, including Internet retailers, which have become true value stocks for us,” he added. Xinyi Glass and Fufeng.Fufeng Group manufactures products such as seasonings, fertilizers, and starch. The company’s stock price has been roughly flat over the past 12 months, but has risen 17% over the past three months. Meanwhile, glass maker Xinyi’s stock price has been declining in recent years. “It’s up 32% in the past 12 months, but it’s up 11% in the three-month period. The company makes glass products for construction companies and auto giants like Ford and General Motors. Really important competitors There is one other company, and there are many smaller competitors as well. “Thanks to its size, it is able to remain profitable even when glass prices are relatively low,” Dimmich said, adding that the company continues to pay “very high” dividends. Both Fufeng and Xinyi Glass are traded on the Hong Kong Stock Exchange. Fufeng is held in the iShares MSCI China Small-Cap ETF, and Xinyi Glass shares are held in the Franklin FTSE Hong Kong ETF and SPDR S&P China ETF.
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