Chinese stock valuations ‘attractive,’ don’t expect quick rebound

Chinese stock valuations 'attractive,' don't expect quick rebound


Chinese language shares presently look “very, very engaging,” however are unlikely to see a fast turnaround within the subsequent few months, based on UBS World Wealth Administration’s Kelvin Tay.

“I believe China is reasonable. If you happen to have a look at the efficiency of China this 12 months, on a relative foundation, it has really underperformed by about 40% in opposition to each the European indices in addition to the American indices,” Tay, regional chief funding officer at UBS World Wealth Administration, informed CNBC’s “Squawk Field Asia” on Tuesday.

As of Tuesday’s market shut, China’s CSI 300 index, which tracks the most important mainland-listed shares, has fallen almost 5% for the 12 months. In Hong Kong, the place lots of China’s tech titans are listed, the Grasp Seng index has plummeted greater than 14% in the identical interval.

As compared, the S&P 500 on Wall Road rose to a brand new report shut — its 69th in 2021 — as late as Monday. Over in Europe, the pan-European Stoxx 600 has gained greater than 22% for 2021 as of its Tuesday shut.

“From a valuations perspective, from a positioning perspective, China definitely seems to be very, very engaging,” Tay mentioned.

The property sector weighs on market

He warned, nevertheless, that the Chinese language market is unlikely to recuperate within the subsequent three months as a consequence of a “distinct lack of catalysts” presently. He cited the necessity for China’s property house to settle earlier than the market can flip around.

Buyers have largely shunned the Chinese language actual property sector this 12 months amid considerations over defaults as builders confronted a credit score crunch. In December, debt-laden property developer China Evergrande Group slipped into default after failing to confirm payment of a debt obligation.

“We do think that things actually starting to turn around but it’s just that, you know, on the issuers front, on the Chinese high-yield front, you’re probably still going to get some news, some negative news on a couple of developers blowing up, filing for defaults, filing for bankruptcies,” Tay said.

Such negative developments are likely to hurt sentiment, he warned: “If sentiment is fragile in the Chinese market right now, any small negative news is likely to be amplified and become big, and that, in turn, is going to actually affect the market as a whole.”

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Looking ahead, Tay said Hong Kong-listed Chinese companies — which were “beaten down really, really badly” this year — are “likely to be far more attractive” as compared with their peers on the mainland.

“The policy risk tightening, we do think that most of that is actually over and done with,” the chief investment officer explained. “What you’re going to get going forward is probably fine-tuning of the measures and not, you know, an unleashing of an overhaul of the system similar to what we had in the tuition industry in July this year.”

Expectations of yuan weakening

Another factor that is set to give Hong Kong-listed Chinese stocks a relative boost is expectations for a weakening in the yuan next year.

“The renminbi has been very, very strong,” Tay said. “The government has actually stressed on a couple of occasions that they’re not quite comfortable with the outperformance of the renminbi vis a vis the other currencies over the last six months.”

As of Wednesday afternoon during Asia trading hours, the onshore yuan has strengthened more than 2% against the dollar for 2021, while its offshore counterpart has gained nearly 2% against the greenback.

“We do expect the renminbi to actually weaken in 2022,” Tay said, adding that will likely affect the performance of mainland-listed Chinese stocks given their “very tight” correlation with the yuan.

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