UBS are getting keener of Chinese stocks:
China Equity Strategy: How much is cheap enough?
- MSCI China at record low valuation MSCI China has declined 10% YTD, underperforming global markets by 8%, and is currently trading at 8.2x forward P/E - on par with previous troughs reached since 2014.
- Historically if investors bought into the MSCI China index at this valuation multiple, they would have generated an average return of 12% in one week.
- As global equities have benefitted from lower interest rate expectations, MSCI China is now also trading at record discount vs MSCI World and EM.
- While recent economic indicators have not shown a material improvement, they have certainly not shown the level of deterioration that has been exhibited by the equity market.
- Looking at the FX, commodity and fixed income markets, it would seem that equity investors are pricing in a more pessimistic outlook on the domestic economy than investors in other markets.
- With trough valuation multiples, light investor position and potential support from the 'national team', we believe risk reward is attractive at this level.
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Earlier posts related to this:
- China's sovereign wealth fund says it will help with market stabilization in 2024
- China's largest brokerage has placed restrictions on short sales
