• 2 mins Smart Investors Are Betting On This COVID-Proof Industry
  • 33 mins Disney’s Digital Pivot Could Be Its Saving Grace
  • 6 hours What Does Tesla's Million-Mile Battery Mean For Green Energy?
  • 8 hours U.S.-China Tensions Are Reaching A Boiling Point
  • 10 hours Gold Remains Strong Amid Increasing Economic Uncertainty
  • 1 day Morgan Stanley And Goldman Sachs Are Betting Big On This Budding Industry
  • 1 day Global Corporate Debt Soars To $9 Trillion
  • 1 day The Fed’s Slippery Slope
  • 1 day Precious Metals Pulled Ahead Of The Pack In The First Half Of 2020
  • 1 day Tesla Faces $20 Billion In Short Interest
  • 1 day China's Economic Recovery Remains Tepid
  • 1 day Silver Inches Closer To $20
  • 1 day The Secret Life Of Lithium
  • 2 days The Pandemic Proof $53 Billion Industry Wall Street Can’t Ignore
  • 2 days Will Gold Hit $2,000?
  • 2 days Trump’s Proposed Regulation Could Slow The ESG Boom
  • 3 days India To Auction 41 Coal Assets
  • 3 days Eldorado Sees Gold Production Soar In Second Quarte
  • 4 days Do Gold Stocks Still Have Upside Potential?
  • 5 days The S&P 500’s Top Companies Hold $2.5 Trillion In Debt
Zombie Foreclosures On The Rise In The U.S.

Zombie Foreclosures On The Rise In The U.S.

During the quarter there were…

Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

Prieur du Plessis

Prieur du Plessis

With 25 years' experience in investment research and portfolio management, Dr Prieur du Plessis is one of the most experienced and well-known investment professionals in…

Contact Author

  1. Home
  2. Markets
  3. Other

Chinese Stocks - Offering Value?

The Chinese stock market has taken a real hammering since its peak in mid-2009. The chronic underperformance of the Shanghai Composite Index is clearly illustrated by its weak relative performance of more than two years versus the Dow Jones World Index and the Morgan Stanley Emerging Markets Index respectively.

chart
Source: StockCharts.com

chart
Source: StockCharts.com

However, I am of the opinion that inflation in China has probably peaked and that economic policy would now be shifting to drive growth as opposed to fighting inflation. Although export growth could decelerate further as a result of anaemic growth in the mature economies, the focus on domestic consumption should allow the country to avert a hard landing.

China's GDP for the third quarter will be released later this week. I expect it to come in at approximately 9.2%, down from 9.4% in the second quarter.

chart
Sources: CFLP; Li & Fung; Dismal Scientist; Plexus Asset Management.

Data that caught my attention recently were the significant jump in overseas machinery orders from Japan in August. It was the first month of positive growth since Japan's twin disasters in March. If this was pent-up demand due to capacity constraints as a result of the disasters it would to a large extent explain the weaker than normal seasonal pattern in China's CFLP Manufacturing PMI. It is thus a matter of wait and see what the published numbers will be in early November. Is an upside surprise awaiting us?

chart
Sources: CFLP; Li & Fung; Dismal Scientist; Plexus Asset Management.

As far as investment in Chinese stocks is concerned, one needs to assess what has been priced in, and it would seem that valuations have fallen to levels from where rallies often commenced in the past (see charts below of the price-earnings multiples of the Shanghai A-share Index and the Hang Seng Index respectively).

chart
Source: Fullermoney.com

chart
Source: Fullermoney.com

Chinese stocks are cheap by all accounts and following an upside key reversal last week after the Chinese authorities' announcement of support for the banking sector, I would be surprised if the recovery does not have more legs into year end.

 

Back to homepage

Leave a comment

Leave a comment