Are Chinese stocks regaining favour? More fund managers predict better returns ahead as economy mends, US-China tensions ease
Improvements on both fronts, plus attractive valuations against historical yardsticks, are paving the way for better returns in mainland China and Hong Kong markets, said Andy Rothman, a strategist at Matthews International Capital Management, which manages about US$12 billion of assets.
“From the macro perspective, we are at the bottom and probably coming out of that,” he said in an interview. “The economy is doing better than it gets credit for. The biggest challenge for the economy now is just confidence.”
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The price-to-earnings ratio of the MSCI China Index members stood at 11.44 times, the lowest in five years and compared with an average 12.93 times over the past 12 months, according to Bloomberg data.
“Sure, there are structural issues in China like local government debt, the property market and the demographics,” Rothman said. “But that is very different than saying these are going to cause a crisis or collapse.”
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Elderly models strut their stuff on catwalk in Chinese capital where population is rapidly ageing
Matthews International started investing in China’s domestic financial markets in 1994. Like many of its industry peers, the US money manager has suffered from fund redemptions in recent years as returns on Chinese assets trailed those in rival emerging markets.
Sell-off in Chinese stocks overdone, ‘downside limited’: Hong Kong fund manager
Sell-off in Chinese stocks overdone, ‘downside limited’: Hong Kong fund manager
Due to the market underperformance, it is a reasonable approach for investors to wait for clear evidence of a build-up in market rally, Rothman said. They should be nimble and proactively look out for those signs, some of which are already emerging in parts of the economy, he added.
US banks including Citigroup have raised their China growth forecasts to 5 per cent for this year to match the official target, Bloomberg reported on October 6. Improved activity data since August suggest the economic slowdown since April has likely bottomed, it said, citing China economist at JPMorgan Chase.
“I do think we are going to have to be patient, and it could take a couple of quarters before a lot of people are convinced” of the upside in Chinese assets, said Rothman, a former junior US diplomat in Beijing. “Some of the data that we have been seeing in recent weeks is improving, including in the property market.”
