Citi’s stock analysts reshuffled their top China plays after their downgrades outnumbered upgrades in the latest earnings season. China’s “economic recovery looks to be slower than market expectations,” the strategists said in a Sept. 2 report. “In our view, the economy will improve materially only if there is significant and sustainable policy easing in terms of COVID lockdown measures, the prospects for which are uncertain.” “Monetary support is limited by concerns about excessive Rmb depreciation and fiscal measures are constrained by lower property sales,” they said. Investment banks have repeatedly cut their forecasts for China’s gross domestic product this year as tight Covid controls have restricted business activity. Beijing signaled in late July that no large-scale stimulus was on the way, and that its Covid policy would not change. It’s against this economic backdrop that Citi’s analysts downgraded 12 China stocks and upgraded eight. Here are three stocks from their updated list of top Hong Kong and mainland-traded Chinese stocks to buy. PetroChina Price target: 4.40 Hong Kong dollars (56 cents), for a nearly 28% upside from Thursday’s close. The state-owned energy giant is Citi’s pick for the second half of this year “as it is a direct beneficiary of high oil prices,” the analysts said. They upgraded the stock from “neutral” to “buy,” with a new target price of HK$4.40. The analysts expect PetroChina to control losses in the second half of the year since there will be better market dynamics: higher energy prices in the winter and lower input costs from Russian gas. Meituan Price Target: 235 Hong Kong dollars, for a 37% upside from Thursday’s close. Citi analysts added this internet name to their top China stock picks, replacing NetEase. Meituan operates China’s version of Yelp, as well as food delivery, ride-hailing and other consumer services. The company has “proven to be a trusted local services platform partner for merchants and reliable lifestyle app for consumers,” the analysts said. They said the like the stock for “strong execution, swift adaptation to the challenging environment and successful roll out of new product services.” Haier Smart Home Price target: 36 Chinese yuan ($5), for an upside of 39% from Thursday’s close. Though Citi analysts prefer H-shares in Hong Kong to the mainland’s A-shares, Shanghai-traded Haier Smart Home made the list of top stocks to buy. “Growth is mainly driven by [average selling price] on high-end product mix improvement and overseas expansion,” the analysts said, adding that declines in raw material prices boost profitability. Haier’s overseas revenue grew by 13% last year , versus just 4% in China.
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