| | Kenny Lau | | Credit Suisse | First-place appearances: 1 Total appearances: 4 Analyst debut: 2010 |
Holding steady at No. 2, Kenny Lau of Credit Suisse has “the best small-, midcap product on the Street,” one portfolio manager cheers. Since the end of the first quarter, small-cap stocks listed both in Hong Kong and on the mainland have “exhibited unusual outperformance over the large caps,” notes Lau. By the end of October, those small caps were up 7.8 percent and ahead of their large-cap counterparts by 11.8 percentage points. He reasons that this outperformance is the result of a lack of sustained long-term growth prospects for the bigger companies, such as financials and cyclicals, amid mainland China’s macroeconomic issues. Further, the consensus for 2014 small-cap earnings growth of 22 percent year-over-year is “too aggressive and will be subject to downward adjustment to weigh on their share prices,” he contends. As a result, Lau advises investors to remain neutral on China’s small caps on the whole but to focus on individual sectors, which enjoy varying opportunities for advancement. He likes the health care segment, which declined by 6.6 percent over the 12 months through October, underperforming the broad market by 12.5 percentage points — and is “ready for a rerating,” he says. China Medical System Holdings, a Shenzhen-based pharmaceuticals and medical products manufacturer, is a particular favorite. He also is a proponent of such recovering subsectors as home appliances and sportswear. On this theme, Lau’s top picks include Gome Electrical Appliances Holding, a Hong Kong–based retailer of household goods and consumer electronics; and Anta Sports Products, a designer headquartered in Jingjiang. — Carolyn Koo |
