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Get set for China’s earnings growth, says CIFM

Earnings growth, shareholding among top management and dividend payout are the more important factors when evaluating China's onshore stocks, argues Judy Chang, chief investment officer at China International Fund Management (CIFM).
Judy Chang, China International Fund Management

CIFM is a joint venture between JP Morgan Chase and its Chinese partner Shanghai International Trust. Chang oversees the firm’s A-share investments and develops the house view of the markets.

She believes robust corporate earnings growth will continue to support China’s onshore stock markets in the second half.

“Investors should look at the growth in corporate earnings more than purely valuation in the A-share market. A stock being cheap in valuation does not equal stock price growth potential. The share price essentially comes from the expansion of earnings.”

Smaller companies historically are priced higher in valuation but it does not stop them from outperforming the broader market, Chang said. Citing China-based data company Wind, she noted that earnings in small and mid-caps on the mainland are expected to grow at a faster pace than the large caps.

Earnings surge?

She believes the overall A-share market is set to grow roughly 20% in earnings terms. Large caps listed in Shanghai are expected to grow 18% (3.6% slower than last year) while companies listed on the Shenzhen exchange (mainly for smaller, innovative enterprises) are estimated to see an earnings increase of 52% and small and medium companies, 38%.

She took reference of the A-share market in 2013 when the market bottomed out and smaller caps saw a larger rebound in prices and outperformed their larger peers on average.

Based on the above criteria, she is bullish on the stock constituents of the CSI 500 Index, which is comprised of mid-cap growth companies in China. Ganfeng Lithium, communication equipment maker Shenzhen Sunway and Longi Green Energy Technology are the index’s top holdings.

Moreover, she said shareholding of top management can be another reference to evaluate a stock in China’s market.

“If the top management is disposing, perhaps it is a sign of the stock being valued too high. On the contrary, the higher level management at Chinese listed companies have been adding their stake in the recent past.”

Since the beginning of the year, she said, top management in 240 Chinese companies increased their individual stake by $5m each, a trend particularly evident in the industrial and healthcare sectors.

She added that the A-share market became more attractive compared to stocks listed in Hong Kong (H-shares). A-share companies are paying higher dividends than they did last year and the premium of some dual-listed stocks narrowed after a correction during the first half.


CIFM manages two Hong Kong-domiciled funds currently. They are: the equity fund, the RMB China A Focus Fund and the multi-asset portfolio, the RMB Diversified Income Fund.

RMB China A Focus Fund against its category average

Source: FE Analytics, in US dollars. The fund does not use a specific benchmark.

Part of the Mark Allen Group.