Shanghai stock picker foresaw last year’s slump. Can his 2019 prediction move China this year?

A Shanghai-based fund manager who correctly forecast no gains in China stocks last year has said the mainland’s equity market, the worst performer globally in 2018, will perform better this year, as economic growth bottoms out and low stock valuations start attracting buyers.

Shi Xingtao, a money manager at HSBC Jintrust Fund Management, said stocks listed in Mainland China will probably stage a comeback as early as the first half, after a whopping 25 per cent decline in 2018. He said he favoured growth stocks and midstream companies in manufacturing based on the metrics of price-to-book ratio and return on equity.

In a nation famous for playing the long game, this Shanghai fund manager is taking the long view

“2019 will have better opportunities than 2018,” he said. “The risk premium of the market is already at a historically high level and that has largely reflected pessimistic expectations about the economy. Economic growth is expected to bounce back in the second half, and the market bottom usually comes earlier than the bottom of the economy.”

An optimistic mood seems to have returned to the equities market at the start of the year. By the afternoon on Wednesday, the benchmark Shanghai Composite Index had gained 0.7 per cent to 2,544.35, and was heading for a 2 per cent gain so far in 2019, after the government said it will introduce measures to boost consumption of home appliances and cars. The gauge was buffeted last year by an intensifying trade war with the United States and a government campaign to rein in the shadow banking sector.

The stock gauge is valued at 9.4 times estimated earnings for the following 12 months, compared with a record low of 7.7 times set in 2014, according to data compiled by Bloomberg.

Shi said investors might need to wait for the economy to end its down cycle on its own, rather than pin hopes on the government’s stimulus policies to quickly hold in check weakening momentum.