Riding on China’s rebound

As China embarks on its economic recovery, Malaysian-listed companies with exposure to China stand to benefit significantly.

UOB Kay Hian (UOBKH) Research highlights several stocks that could ride this wave, driven by anticipated fiscal stimulus programmes and Chinese President Xi Jinping’s upcoming visit to Malaysia.

“The long-anticipated visit by China’s premier Xi to Malaysia may hopefully materialise in the near term,” says UOBKH Research.

“The visit, which is a delayed celebration of the 50th Anniversary of Malaysia-China diplomacy in 2024, should revive interests in Malaysian listed-company (that are) beneficiaries of China’s economic recovery,” the research house adds.

Key beneficiaries identified by UOBKH Research include Hong Leong Bank Bhd, Press Metal Aluminium Holdings Bhd, My EG Services Bhd (MyEG) and tourism-related players such as Alpha IVF Group Bhd (medical tourism), Genting Malaysia Bhd (GenM), and Pavilion-Real Estate Investment Trust (Pavilion-REIT).

“China’s importance to the Malaysian economy is significant,” the research house notes in its recent report, stating that China accounts for 23% of Malaysia’s total external trade in 2024, 13% of inbound tourists, and dominates global demand for ferro-silicon, aluminium and tin.

“The Hang Seng and Hang Seng China Enterprises indices’ year-to-date (y-t-d) run-ups reflect both China’s political will to significantly reinvigorate the country’s economy and recent technological advancements,” UOBKH Research points out.

The current rally, it adds, “has some resemblance to the Magnificent Seven’s phenomenal support for US equities.”

Key beneficiaries

Among Malaysian beneficiaries, UOBKH Research highlights Hong Leong Bank’s 19.8% stake in the Bank of Chengdu, which contributes 30% of the lender’s profit before tax.

Press Metal and OM Holdings Ltd (OMH) are also key players, given China’s consumption of over 50% of global refined tin, steel and aluminium.

UOBKH Research estimates that revenue originating from China accounts for 10% of Press Metal’s group income and 15% to 20% of OMH’s total revenue.

Sime Darby Bhd is also expected to benefit due to its significant presence in China through Caterpillar, Kia, Volvo and BMW dealerships in the country, which generated about 26% of its 2024 revenue.

Nevertheless, the brokerage acknowledges that market share losses in Sime Darby’s Asian automotive operations (most significantly in China) to electric vehicle producers remain a challenge.

Meanwhile, MyEG stands out for its blockchain-based cross-border trade platform, ZTrade, which facilitates digital verification of trade documents between Malaysia and China.

By the fourth quarter of 2024, about 33% of MyEG’s revenue is related to Zetrix token sales and Web3 services, with 10% derived from ZTrade and ZCert services.

China’s recovery is also positive on the plantation sector, as the country is second-largest importer of palm oil from Malaysia.

“We believe the benefit would accrue more for those with material downstream exposure in China such as Kuala Lumpur Kepong Bhd (KLK), given the soft processing margins in recent quarters,” UOBKH Research says.

The brokerages estimates that revenue contribution from China for integrated planters like KLK and IOI Corp Bhd to be 5% to 10%, and less than 1% for SD Guthrie Bhd in 2024, while the pure upstream players’ revenue exposure to China should be higher, as much as 10% of revenue.

Tourism beneficiaries include Alpha IVF, where Chinese patients account for nearly 20% of its volume; GenM, where Chinese visitors historically represent 11% to 12% of Malaysia’s inbound tourists and about 10% of revenue at Resorts World Genting; and Pavilion-REIT, where a 10% increase in Chinese spending is projected to contribute a 1.5% revenue growth.

UOBKH Research also identifies Malaysian technology companies such as Vitrox Corp Bhd, Malaysian Pacific Industries Bhd and Unisem (M) Bhd as potential winners, albeit with benefits expected to materialise only in the third or fourth quarter of 2025 due to ongoing supply chain challenges and subdued global demand.

Optimistic outlook

Meanwhile, HSBC Global Private Banking group remains optimistic about China’s economic outlook, particularly following Beijing’s focus on consumption growth and artificial intelligence (AI) investment.

“Pivoting on innovation and investment boom in AI in the private sector, China steps up its efforts in supporting domestic consumption amid global trade uncertainties,” HSBC notes.

“We think Chinese stock markets will continue to see earnings and re-rating opportunities even after the recent outperformance over global equities.”

The Chinese government recently introduced 30 special initiatives to boost consumption, focusing on income support, social security, consumer goods upgrades and AI-related innovations.

HSBC views this as a “favourable shift in policy direction” that will encourage growth in domestic spending and technological advancements.

China’s recent economic performance shows signs of stabilisation, with stronger-than-expected growth in retail sales, industrial production and manufacturing investments.

HSBC highlights this recovery as a key reason for optimism in Chinese equities which, despite their 20% y-t-d rally, still trade at significantly lower valuations than the S&P 500 Index in the United States.

In a more subdued tone, Nomura Research argues that Beijing’s 5% gross domestic product growth target for 2025 will face hurdles.

“All the 300 billion yuan incremental funding from ultra-long special China Government Bonds in 2025 will be used for extending the consumer trade-in scheme,” Nomura says.

However, it warns that “the boost from the scheme is unlikely to be sustained,” especially as property sector woes and geopolitical tensions weigh on China’s economic momentum.

Nomura warns that China’s property sector contraction could impact household confidence, adding to the challenges in sustaining growth momentum.

“As growth could face much stronger headwinds in the second half of the year, we expect Beijing to be pressured to step up stimulus measures to stabilise growth again, especially on service consumption, which is not covered by those trade-in programmes,” Nomura adds.

Despite these challenges, UOBKH Research remains confident that Malaysia’s strategic sectors will reap the rewards of China’s rebound.

“The anticipated recovery of China’s economy should benefit several key Malaysian listed companies,” the research house argues.

With targeted fiscal measures, strong Chinese equity market performance and a boost in outbound tourism, Malaysia’s China-exposed stocks may be well-positioned for growth in the months ahead.