The mainland's A shares are still among the most attractive in Asia-Pacific even after a strong rebound over the past three months, given their low valuations and big re-rating potential following key political conferences next month, according to Allianz Global Investors.
The Shanghai Composite Index is trading at around 12 times price to forward earnings and AllianzGI expects the valuation of the onshore benchmark to bounce back to around 14 to 15 times.
The benchmark had its biggest decline in a month on Tuesday on speculation that the government could announce new measures to curb the property market. The gauge finished 0.6 per cent higher at 2,397.18 points yesterday.
Corporate earnings were expected to provide a boost to share prices, but whether the market would bring sweet surprises to investors this year would depend on whether Beijing would announce key reforms next month that would trigger a re-rating wave for the stocks, said Raymond Chan, AllianzGI's chief investment officer for Asia-Pacific.
"There could be some key reforms in interest rate liberalisation, the bond market and the tax system following the key political meetings in March," Chan said. "Those reforms would benefit the financial institutions most."
He expects earnings at mainland-listed firms to have low double-digit growth this year.
As for Hong Kong, liquidity inflows would accelerate, providing additional support for the Hang Seng Index to rise further this year, the fund house said. Chan forecast high single-digit growth in earnings at Hong Kong-listed firms this year.
Japan would be another market that could outshine in Asia-Pacific this year, given the fresh easing measures by its central bank, Chan said. "Japan's return-on-equity deterioration could be near a trough," he said.
The asset manager has revised its rating on Japan's markets to "neutral" from "underweight" on expectations that the new round of easing by the Bank of Japan could inflate stock prices.