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China indicies rise as valuations remain low

The CSI 300 Value index is up more than 7% and the Shanghai Composite is up 6% since March, following a long period of underperformance. Yet valuations are low, sources said, and China is one of the cheapest markets in the world.

“Valuations [on China equities] are at rock bottom,” said James de Bunsen, a multi-asset portfolio manager at Henderson Global Investments in London.

However, Henderson Global hasn’t yet invested in China because specific concerns about the shadow banking system, the deceleration of GDP growth and corporate governance remain, de Bunsen said.

The 12-month forward price-to-earnings of the CSI 300 is only 7.1, according to data from JPMorgan.

“China’s valuations are not only attractive compared to historical trends but also compared to other emerging markets,” said Lilian Leung, fund manager of JPMorgan’s newly-launched China A-Share Opportunities Fund. 


The Hong Kong and Shanghai stock market linkage, expected in October, which will allow investors in both jurisdictions to buy shares on each others’ exchanges, could be a catalyst for the indices, she added.

For example, state-owned enterprises are a key focus of government reform and these large entities could become attractive to foreign institutional investors when efficiencies are improved and they list on the exchange.

“This [linkage] is just a start of an overall liberalization of China for foreign investors,” Leung added.

Stabilizing real estate?

China’s property segment remains the most widely discussed topic, said Leung.

Residential property sales are still negative on a year-on-year basis, but there’s a pickup in terms of construction activities, according to data from JPMorgan. In the first half, new construction starts were -20%. That reduced to -13% in July.

“The whole property segment is seeing a gradual recovery in terms of volume and ASPs declining. It’s a great window of opportunity.”

As for sectors, healthcare and IT have outperformed other key sectors for the last five years, and energy has been the biggest laggard with a -56% performance, data from FE shows.


Part of Mark Allen.