Chinese stocks presently look “very, very attractive,” however are not likely to see a fast turn-around in the next couple of months, according to UBS Global Wealth Management’s Kelvin Tay.
“I think China is cheap. If you look at the performance of China this year, on a relative basis, it has actually underperformed by about 40% against both the European indices as well as the American indices,” Tay, local primary financial investment officer at UBS Global Wealth Management, informed CNBC’s “Squawk Box Asia” on Tuesday.
As of Tuesday’s market close, China’s CSI 300 index, which tracks the biggest mainland-listed stocks, has actually fallen almost 5% for the year. In Hong Kong, where a lot of China’s tech titans are noted, the Hang Seng index has actually plunged more than 14% in the exact same duration.
In contrast, the S&P 500 on Wall Street increased to a brand-new record close– its 69 th in 2021– as just recently asMonday Over in Europe, the pan-European Stoxx 600 has actually acquired more than 22% for 2021 since its Tuesday close.
“From a valuations perspective, from a positioning perspective, China certainly looks very, very attractive,” Tay stated.
Property sector weighs on market
He cautioned, nevertheless, that the Chinese market is not likely to recuperate in the next 3 months due to a “distinct lack of catalysts” currently. He mentioned the requirement for China’s residential or commercial property area to settle prior to the marketplace can reverse.
Investors have actually mostly avoided the Chinese realty sector this year amidst issues over defaults as designers dealt with a credit crunch. In December, debt-laden residential or commercial property designer China Evergrande Group slipped into default after stopping working to verify payment of a debt commitment.
“We do think that things actually starting to turn around but it’s just that, you know, on the issuers front, on the Chinese high-yield front, you’re probably still going to get some news, some negative news on a couple of developers blowing up, filing for defaults, filing for bankruptcies,” Tay stated.
Such unfavorable advancements are most likely to harm belief, he cautioned: “If sentiment is fragile in the Chinese market right now, any small negative news is likely to be amplified and become big, and that in turn is going to actually affect the market as a whole.”
Looking ahead, Tay stated Hong Kong- noted Chinese business– which were “beaten down really, really badly” this year– are “likely to be far more attractive” as compared to their peers on the mainland.
“The policy risk tightening, we do think that most of that is actually over and done with,” the primary financial investment officer discussed. “What you’re going to get going forward is probably fine tuning of the measures and not, you know, an unleashing of an overhaul of the system similar to what we had in the tuition industry in July this year.”
Expectations of yuan weakening
Another element that is set to provide Hong Kong- noted Chinese stocks a relative increase is expectations for a weakening in the yuan next year.
“The renminbi has been very, very strong,” Tay stated. “The government has actually stressed on a couple of occasions that they’re not quite comfortable with the outperformance of the renminbi vis a vis the other currencies over the last six months.”
As of Wednesday afternoon throughout Asia trading hours, the onshore yuan has actually reinforced more than 2% versus the dollar for 2021, while its overseas equivalent has actually acquired almost 2% versus the greenback.
“We do expect the renminbi to actually weaken in 2022,” Tay stated, including that will likely impact the efficiency of mainland-listed Chinese stocks provided their “very tight” connection with the yuan.
