UBS give 3 reasons Chinese stocks look attractive now

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.***Earlier posts related to this:China's sovereign wealth fund says it will help with market stabilization in 2024China's largest brokerage has placed restrictions on short sales This article was written by Eamonn Sheridan at www.forexlive.com.

Jan 22, 2024 - 09:45
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UBS give 3 reasons Chinese stocks look attractive now

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.

***

Earlier posts related to this:

This article was written by Eamonn Sheridan at www.forexlive.com.
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