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World NewsChinese stock valuations 'attractive,' don't expect quick rebound

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

Chinese shares presently look “very, very attractive,” however are unlikely to see a quick turnaround within the subsequent few months, in line with UBS Global Wealth Management’s Kelvin Tay.

“I think China is cheap. If you look at the performance of China this year, on a relative basis, it has actually underperformed by about 40% against both the European indices as well as the American indices,” Tay, regional chief funding officer at UBS Global Wealth Management, advised CNBC’s “Squawk Box 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 Hang Seng index has plummeted greater than 14% in the identical interval.

In comparability, the S&P 500 on Wall Street rose to a brand new report shut — its 69th in 2021 — as lately 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 certainly looks very, very attractive,” Tay mentioned.

Property sector weighs on market

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

Investors have largely shunned the Chinese actual property sector this 12 months amid issues over defaults as builders confronted a credit score crunch. In December, debt-laden property developer China Evergrande Group slipped into default after failing to verify fee 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 mentioned.

Such adverse developments are more likely to harm 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 forward, Tay mentioned Hong Kong-listed Chinese corporations — which had been “beaten down really, really badly” this 12 months — are “likely to be far more attractive” as in contrast with their friends on the mainland.

“The policy risk tightening, we do think that most of that is actually over and done with,” the chief funding officer defined. “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

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