Chinese stocks look very attractive, but are not likely to see a quick turn around in the next few months, according to a report.
I think China is cheap. The performance of China this year has been worse than that of the European and American indices, according to the regional chief investment officer at UBS Global Wealth Management.
China's CSI 300 index, which tracks the largest mainland-listed stocks, has fallen nearly 5% for the year as of Tuesday's market close. In Hong Kong, where many of China's tech titans are listed, the Hang Seng index has plummeted more than 14% in the same period.
As recently as Monday, the S&P 500 on Wall Street had a new record close. The pan-European Stoxx 600 has gained 22% for the year, as of Tuesday's close.
China looks very attractive from a positioning and valuations perspective.
The Chinese market is unlikely to recover in the next three months due to a lack of catalysts. China needs property space to settle before the market can turn around.
The Chinese real estate sector has largely been ignored by investors this year due to concerns over defaults. China Evergrande Group slipped into default in December after failing to confirm payment of a debt obligation.
We think that things are starting to turn around, but you are probably still going to get some negative news on a couple of developers blowing up, filing for defaults.
He warned that if sentiment is fragile in the Chinese market, any negative news is likely to be amplified and become big, and that in turn is going to affect the market as a whole.
The Chinese companies that are listed in Hong Kong are likely to be more attractive than their peers on the mainland.
The chief investment officer said that most of the policy risk tightening is done. You are going to get fine tuning of the measures and not an unleashing of an overhaul of the system like we had in the tuition industry in July this year.
Expectations for a depreciation in the yuan next year will give Hong Kong-listed Chinese stocks a boost.
The renminbi has been very strong. The government has made it clear that they are not comfortable with the out performance of the renminbi vis a vis the other currencies over the last six months.
The offshore yuan has gained 2% against the dollar, while the onshore has strengthened 2%.
The renminbi is expected to weaken in 2022, which will affect the performance of mainland-listed Chinese stocks.
