(Bloomberg) -- European stocks with exposure to China have been dented by the nation’s economic struggles, but a top asset manager says they still provide a “safer” way for investors to trade any potential recovery or further stimulus.

DWS Group, which has €859 billion ($914 billion) under management, said investing directly into Chinese equities carries risks due to unexpected regulatory changes, so it favors exposure to firms that could indirectly benefit from trends such as industry automation and digitalization.

“While we’re not so optimistic about direct investment in China, it’s different for European equities that have exposure there,” Marcus Poppe, co-head of European equities at DWS Group, said at a roundtable at Bloomberg’s offices in London. Companies in some sectors have seen “stellar” revenue growth despite a faltering macro picture for the world’s second-largest economy. “So that’s a safer way to play China,” he said. 

European luxury goods-makers including LVMH, Gucci-owner Kering SA and Hermes International get up to a fifth of their revenue from China. The country is also a major market for miners and automakers — sectors that have been hit hard by a property market crisis and an uneven post-Covid economic recovery. 

To be sure, chasing Europe to play any China bounce faces risks, particularly from deteriorating ties between Brussels and Beijing after the EU launched an anti-subsidy probe into Chinese electric vehicles. 

Optimism toward China has also faded, with Bank of America Corp.’s latest fund manager survey showing a record rotation away from emerging markets. Broader positioning in European stocks has remained bearish, the survey showed, with investors preferring US stocks amid signs of a resilient American economy and bets of a peak in interest rates. 

Still, DWS — which has about 859 billion euros ($914 billion) under management — is among the few market forecasters with a bullish view on European equities. It sees the region’s stocks as having the scope to outperform their transatlantic peers again given a stronger European consumer and solid real wage growth.

Bjoern Jesch, global chief investment officer at DWS, said he had a 12-month target for the S&P 500 of about 4,500 — representing an upside of about 4% from current levels. By contrast, his target for Germany’s DAX is 16,700 — implying gains of over 7%.

The Stoxx 600 index is up less than 7% so far this year and has consistently underperformed the S&P 500 in dollar terms since May. A recent Bloomberg poll found strategists see no further upside for the index this year.

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