How Does Investor Demand for Chinese EV Makers Reflect Broader Shift in Capital Allocation?

CGTN Europe

Chery Automobile shares surged in their Hong Kong debut, reflecting strong demand and investor confidence in China’s EV market. Fiona Cincotta, Analyst at City Index, told CGTN Europe that she sees a positive outlook for China’s automobile and EV sector, driven by government support, clean energy targets, and infrastructure investment. However, she noted that raw material costs and supply bottlenecks remain potential risks. Meanwhile, the rally in Chinese AI and tech stocks is viewed as structurally strong, supported by state policies, major investments from leading tech firms.

Transcript

00:00Cherry Automobile shares have jumped over 11% in their Hong Kong debut as the company enters the electric and smart vehicle market.

00:08The battery maker, CATL, rose 6% to a record high, becoming China's third largest locally listed company.

00:15It now has a market value of $257 billion amid rising battery demand.

00:21Let's talk to Fiona Sincotta, the market analyst at Citi Index.

00:25Fiona, welcome back. Lovely to see you.

00:27So Cherry's strong debut in Hong Kong.

00:30What does all this tell us about investor sentiment towards China's car makers?

00:36Well, as you noted, I mean, we had that really impressive performance.

00:40And if we just have a look at those IPO figures, delve a little bit deeper,

00:44we know that on the IPO, the institutional tranche was actually 11 times oversubscribed.

00:50The retail tranche was 308 times oversubscribed.

00:54So, you know, these numbers are really giving us a sense that there is strong demand for this stock,

01:02but more broadly for the automobile and the EV sector in China.

01:08Given this rise in CATL and other battery and clean energy names,

01:13I mean, do you see a broader shift in capital allocation inside the Chinese equity market,

01:19or is this more of a short-term rally?

01:24No, you know, I think if we look at the fundamentals here, they do appear to be very supportive.

01:31I mean, just having a look at, as you said, CATL, they are up 90% year-to-date, the share price.

01:37And as I said, fundamentals are supportive here.

01:39You know, you've got Beijing backing, you've got subsidies, you've got clean energy targets.

01:44And that, I think, really gives confidence towards the sector.

01:49And then you've also got massive investment infrastructure, which is also adding to this sort of bullish case.

01:56Obviously, there are always risks that one needs to be aware of.

02:00You know, I think, you know, rising costs of raw materials, supplied bottlenecks,

02:04they could all be risks that would affect this.

02:06But I think, broadly speaking, the fundamental backdrop here is really encouraging.

02:09And I promise I won't play this back if it all goes pear-shaped,

02:13but what's your view on whether the tech and the artificial intelligence rally in China is going to go on and on?

02:20I mean, is it sustainable?

02:22Yeah, again, you know, I think structurally there are sort of strong fundamentals behind this as a structure to this rally.

02:30Again, we're seeing, you know, very much state support for it,

02:34the use of AI in industry and embedding that into the economy.

02:40Then you've also got really high investments, large investments from those AI big tech companies.

02:47You know, we're thinking Alibaba, Beidu.

02:49They are investing very heavily here, which should result in revenue growth and profitability.

02:55So, you know, I think with those factors,

02:57and then there's also the fact that there is that difference in valuations at the moment.

03:01So you've got U.S. tech stocks, which are really, you know,

03:03there is a sense that they are very much overvalued right now.

03:06So that could indeed encourage the rotation towards the Chinese tech sector as well.

03:12Fiona, good to see you.

03:13Fiona Sincotta, the market analyst at Citi Index.

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