China Is Not Really That Expensive: Eastspring’s Wong

Do you think these markets are expensive China equities start there. Well China in particular they're not really that expensive right. When you look at it purely from a price to earnings as well as the price of book basis is one of the most inexpensive you know in the world. The fact is that there's still a lot of overall investor sentiment which is still fairly weak. I mean both on short domestically as well as overseas. I was in China a couple of weeks ago you know being with some clients and also some of the strategies and their sentiment is you know very similar. The fact is that they're waiting for specific key data points which is going to lead to sort of an improvement and maybe more people want to get back into the market.

There's a lot of money on the sidelines in China. And the fact is that a lot of these individual or specifically institutional investors in China are really waiting. Every analyst that we come on here almost says overweight fixed income. What is the equity case now. Yeah. I mean you gotta be very selective especially when it comes to China. You gotta be careful specifically of where the opportunities are going to be.

Especially over the past six months or so when you're investing in China. So we have performed very well. Yeah. There's been a push towards value equities. There's been a push towards higher dividend paying equities. You see that particular market segment have done very well specifically when you focus on more policy related more the growth related the new economy sectors. These sectors are still kind of you know a wait and see approach.

And this is one of the issues that we've been seeing within China. And that's why investors are really sort of waiting for the right opportunities like time coming up like you know sort of earlier mentioned with one of your guests saying that you know both economic sort of manufacturing data that demand is really not there. There's a lot of excess inventory. And the fact is that with this excess inventory is going to take time to deplete one of the figures and one of the sort of I would say key economic readings to look at is PPI. PPI is still relatively weak in China. When PPI starts to pick up then potentially you will start to see more you know manufacturing activities starting to happen. So we think that's going to be a key focus and one key metric to look at.

And curiously PPI is not a four teller of CPI. This is what you pointed and you're suggesting in the second half we get this recovery. But I mean Chinese equities are just at the moment decoupled as a market from the rest of what you can see that with the division between A and H shares. Can't you. And you're not getting interest from money managers in the state. Well it surely comes a point when they can't avoid value which is screaming to buy. Yeah you're absolutely right.

And again from our basis in our key point we feel that onshore there's going to be more opportunities in particular when you look at the amount of overseas investors within the onshore market is very light overall exposure for on for offshore related investors within or investing in China. It's roughly about three to four percent. When you look at amount of overseas. How much was it. How much was it earlier or earlier maybe from a year ago it was less maybe one or two percent. But again about one percent. So it has gone a bit.

But if you look at Hong Kong shares or ADRs there's roughly about 20 percent for an investor exposure. So you have a lot of investors who are ready in Hong Kong or within the ADRs but within the shares is a very small portion. What's the trigger for for the offshore market. You know you mentioned people are waiting for catalysts. Is it the Fed. Is it something outside China. Potentially.

The fact is that maybe once you start to have some of the capitals flowing out of the U.S. let's say for instance if the dollar starts to weaken further right we're ready down to about one to one on the dollar index. And potentially that we can further will you potentially start to have some capital maybe being reallocated back into Asia. Right. We're seeing a lot of investors still focusing on dollar investments because the fact is that dollar has been strong. But the fact is that if let's say the Fed is sort of at a point where they're going to stop raising interest rates and the dollar starts to weaken then you could potentially have some of this assets being reallocated.

And one of those instances is if they're looking for opportunities looking for value obviously China is one of those places where investors might look. You can't be underweight China you know sort of for an extended period of time. Let's say if China does start to outperform then you're going to start to see a lot of investors starting to close some of those underweight positions similar to what we saw in October and November periods here in Hong Kong. Yeah a lot of the hedge funds specifically at that time who are shorting China exclusively or extensively. Then there was a lot of short coverings. Now in this particular. They left fairly quickly.

They did. They did. And for a lot of the long only investors especially the ones in the U.S. specifically for let's say amongst global equities or E.M. equities.

They're still underweighting China quite a bit. So any sort of momentum within the markets you could expect to see some of those underweight positions to gradually reduce.

China, China Economy, David Ingles, Ken Wong, Markets, Rishaad Salamat, Yvonne Man, equities, investment strategy