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Davis Advisors Commentary: Trade War Trouble Means Great Value in Some Chinese Stocks

Portfolio Manager Danton Goei on how the trade war is contributing to a dislocation in some Chinese stocks, creating opportunities for value investors

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Holly LaFon
Jul 11, 2019
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It’s easy for investors reading conflicting headlines and disruptive tweets to conclude that the U.S./China Trade War is erupting into an economy-stifling scrape. The high-pitched rhetoric from both countries also has the painful impact of whipsawing stocks perceived to be at risk of negative impacts from a lengthy trade war and punitive tariffs.

In some cases though, the Chinese companies being dramatically misvalued because of their perceived connection to trade war fallout are actually quite insulated from it. In particular, domestic-oriented consumer companies benefiting from the growth of the middle class, and not reliant on exports should not be as affected by trade policy as the market seems to expect.

A few businesses to consider:

Alibaba (

BABA, Financial) is China’s e-commerce powerhouse, with a diverse set of businesses in technology, financial services and social media, among others. Though it is very much domestically focused and a slim percentage of its revenue is at risk from a U.S.-China trade war, Alibaba has been tarred by the same brush as other Chinese companies with direct export risk.

New Oriental Education and Technology (

EDU, Financial) is China’s largest provider of after-school tutoring, with more than 1,000 learning centers. Top Chinese universities have gotten even more competitive than the Ivy League, accepting less than 3% of applicants, and parents’ desire to have their children make the grade has no exposure to a U.S.-China trade war.

Hollysys Automation Technologies (

HOLI, Financial) is a leader in automation processes for factories, rail networks and nuclear facilities, among other industries, in China and other parts of Southeast Asia as well as in certain countries in the Middle East. As the countries and greater regions where the company operates continue to grow and develop, we believe Hollysys has a long runway for creating value for shareholders and is another example of a Chinese business that is largely insulated from the trade war given the geographies it serves and is trading at nearly a single-digit valuation today.

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