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Managers find Hshares attractive to Ashares

Added 27th January 2015

China's H-share market has become attractive compared to premium-priced A-shares, according to portfolio managers.

Managers find Hshares attractive to Ashares

“Chinese equities still look attractive on a ‘top-down’ valuation basis, especially the H-share market," said Josh Crabb, head of Asian equities at Old Mutual Global Investors. 

H-shares are trading at 7.3 times forward price/earnings while company earnings growth over the next 12 months is expected to be 12.8%, he said.

Echoing a similar view is Sean Taylor, regional investment head APAC & head of emerging markets at Deutsche Asset & Wealth Management.

“We prefer H-shares over the A-shares as the A-share market is trading at a premium,” he said, adding that the recent correction in China A-shares was healthy.

The Shanghai Composite Index tanked early last week after the China Securities Regulatory Commission suspended leading brokerages from lending money and stocks to new clients for three months.

The move unnerved investors as the recent rally in the Shanghai exchange has been largely fueled by retail investors buying on margin.

In a recent report, Hong Kong's Securities and Futures Commission warned about the increasing volatility in the Chinese market, though it was the top performing market in 2014.

More easing on cards

Taylor at Deutsche sees more monetary easing steps coming in 2015 as the Chinese government seeks to maintain stability in the medium-to-long term.

“We are more positive that the Chinese government will continue to relax policy to slow down the decline in the economy which should be positive for the stock markets,” he said.

Taylor sees China's economy expanding by 6.8% in 2015.

Reporting its lowest annual growth rate in 24 years, China recently said its economy grew by 7.4% in 2014, compared to 7.7% in 2013. 

Crabb at Old Mutual believes that the Chinese market looks attractive with concerns over a slowdown in growth already reflected in discounted share prices. 

“Recent tailwinds such as the fall in commodity prices and the cut in interest rates should propel the market higher over the medium term,” Crabb said.

China’s Premier Li Keqiang recently said that the country will avoid a hard landing and the government is focused on ensuring long-term sustainable growth using prudent monetary policy and proactive fiscal policy.

In November, the People’s Bank of China reduced interest rates for the first time in more than two years.

The PBoC slashed the one-year benchmark lending rate by 40 basis points to 5.6% and reduced the one-year benchmark deposit rate by 25 bps to 2.75%. 


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