JPMorgan prefers Hong Kong stocks to A shares with 18% best-case upside prospects
Stocks in Hong Kong are cheaper and backed by stronger earnings performance, attracting mainland-based fund managers
Chinese stocks listed in Hong Kong are likely to outperform their yuan-denominated peers on onshore stock exchanges because of valuation advantages and buying support from mainland-based investors, according to JPMorgan Chase.
Stocks in the Hang Seng Index currently trade at about 11.2 times their earnings, compared with a more expensive 15.2 times for peers in the mainland’s benchmark CSI 300 Index, according to Bloomberg data. The Hong Kong stock benchmark has risen 19 per cent this year, while the CSI 300 has stagnated.
“A shares are a bit weaker in terms of corporate earnings and the valuations are also relatively higher than Hong Kong stocks,” Wendy Liu, a China equity strategist at JPMorgan, said at a media briefing in Shanghai on Wednesday. “Mainland investors also like to buy quality growth stocks in Hong Kong.”
Mainland-listed companies suffered a 14 per cent annualised drop in earnings in the fourth quarter, compared with an 11 per cent gain enjoyed by members of the Hang Seng Index, according to data compiled by UBS and Bloomberg.
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JPMorgan forecasts the MSCI China Index – the broadest gauge tracking more than 700 Chinese stocks listed at home and abroad – to climb 6.3 per cent by the of the year in base-case scenario, and by as much as 18 per cent in best-case outcome, from its closing level on Tuesday. The CSI 300 Index of onshore blue-chip stocks may advance 6 per cent by December, it added.