RCM Asia Pacific touts continued China opportunities
01 November 2012
News, Asia, China, Taiwan
By Hui Ching-hoo
RCM Asia Pacific holds a positive long-term view on the Chinese A-share market due to its low valuation, although the country’s economy is running into headwinds with mounting inflationary pressure and slowing GDP growth.
Speaking at Asia Asset Management’s annual roundtable in Taipei, Raymond Chan, chief investment officer of RCM Asia Pacific, said he expects the Chinese government to steer away from a hard landing.
Although the country’s consumption and trade surplus figures are weakening, its economic fundamentals have not shown any sign of a hard landing, with its purchasing managers index (PMI), manufacturing PMI, and GDP growth holding at healthy levels. Furthermore, the country’s fixed asset investment (FAI) is expected to pick up in six to nine months, driven by the increase in investment in infrastructure projects, he added.
In addition, Mr. Chan pointed out that the country’s inflationary pressure has eased, with key benchmarks such as consumer price index (CPI), producer price index (PPI) and non-food CPI indexes all displaying downtrends over the previous 12 months.
Mr. Chan remarked that Chinese stocks suffered massive earnings downgrades over the previous 18 months as a result of the GDP slowdown as well as the margin contraction.
On a brighter note, China earnings revisions are likely to have neared the bottom. The valuation of Chinese companies is close to rock bottom despite the earnings-per-share growth for Chinese equities remaining under pressure. The 12 month forward price-to-earnings ratio (PE ratio) for the Shanghai-A PE band currently stands at 12.6 times, compared to its mean of 29.8 times.
He notes that the return on equities for the A-share market is holding up fairly well at around 15%. Furthermore, some key market reforms stemming from the 12th five-year plan, such as pricing deregulation, tax reforms, financial sector innovation, and railway restructuring, should sustain the market’s resurgence. Mr. Chan said he favours consumption and industrial sectors as various stocks there have come down to reasonable levels.
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