China H-Shares: Capture Opportunities In This Golden OctoberMoving into October, the market is all eyeing on the fifth plenary meeting which will be held on 26 to 29 October, with 13th Five Year Development Plan being one of the important agenda for this meeting. In this article, we highlight some of the catalysts that will likely drive H-Shares valuation higher and discuss the values for investing in China H shares market.
Key Points:
1. The onshore and offshore Chinese markets as represented by CSI 300 and Hang Seng Mainland 100 (HSML100) Index have receded -35.6% and -24.6% respectively from year high (as of 12 October 2015, returns in local currency terms).
2. With the fundamentals of Chinese equity market remains intact, we opined that the recent sell-off on the back of “China’s hard landing expectation” is somewhat overdone, providing a good entry point for medium to long term investors.
3. In comparison with the developed markets, valuation for China H-shares remains attractive, with its HSML100 Index trading at 9.78X and 9.04X estimated PE for 2016 and 2017, far from its 13X fair PE level.
In view of the inevitable RMB devaluation along with the RMB internationalisation, we favour China H shares as they are in a better position to withstand currency risks from this initiative compared to the China A shares.
4. The Chinese heavy intervened the market earlier had struck investors’ faith. The intervention had also dampened the investment sentiment and triggered morale hazard in the market. With the policy focus switched from “financial market intervention” to “economic driven initiatives”, the market has started to normalize ever since then.
5. With various economic reforms such as “China’s Economic Transition” and “Capital Markets Liberalization” under the 13th Five Year Development Plan remain intact, we maintain our favourable outlook for China.
The onshore and offshore Chinese markets as represented by CSI 300 and Hang Seng Mainland 100 (HSML100) Index have receded -35.6% and -24.6% respectively from year high (returns in local currency terms as of 12 October 2015), which resulted in a sluggish third quarter for Chinese equities (refer to Table 1). With no major deterioration in the fundamentals of Chinese equity market, we opined that the recent sell-off on the back of “China’s hard landing expectation” is somewhat overdone, providing a good entry point for medium to long term investors.
URL:
http://fundsupermart.com.my/main/research/...en-October-6427