After US$1.9 trillion rout, Chinese stocks may have seen the worst, Standard Chartered’s CIO says

Name: Shanghai locks down western bank of Huangpu River as Covid fight continues in China’s biggest city
Uploaded: 2022-04-06T00:30:15.000Z
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Description: Shanghai locks down western bank of Huangpu River as Covid fight continues in China’s biggest city

Valuation of Chinese stocks at deepest discount in 20 years relative to global peers, says Lam at Standard Chartered’s wealth management unit

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Cheryl Heng

Published: 8:30am, 6 Apr 2022Updated: 8:36am, 6 Apr 2022

Chinese stocks are likely to outperform global peers over the next 12 months as investors have probably seen the worst of the sell-off after a US$1.4 trillion rout in MSCI China Index this year, according to Standard Chartered.

Cheap valuations and further policy easing will support stock prices even as risks to China’s economic growth multiply amid sporadic Covid-19 lockdowns and accelerating global inflation. That call resonates with strategists at Goldman Sachs, who predict a 23 to 29 per cent upside for 2022.

“We may have seen the worst in Chinese equities this year,” Daniel Lam, a senior cross-asset strategist at Standard Chartered’s Chief Investment Office in Hong Kong, wrote in a report on Friday. “Chinese authorities will continue to ease monetary policy and step up fiscal stimulus in order to hit its ambitious GDP growth target.”

The bank favours stocks in the energy, financials, and industrial sectors, saying there is room to catch up with the rise in oil prices, easing credit concerns and the state policy to shore up high-end manufacturing. Policy tightening in the developed economies could spur rotation into Chinese equities, Lam added.

The MSCI China Index, which tracks 738 stocks, fell 14 per cent last quarter, adding to a 21.6 per cent slump in 2021. A tech-sector crackdown, coupled with delisting risks involving Chinese companies traded in the US and worries about “secondary sanctions” related to Russia’s invasion of Ukraine, combined to knock US$1.9 trillion of market value from the index members in the 15-month period.

The sell-off has driven the index’s forward price-earnings multiple to 11.1 times at the end of February, versus 17.4 times for the MSCI World Index. That put the discount on Chinese stocks relative to global peers at the deepest in about 20 years, Lam said.

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Shanghai locks down western bank of Huangpu River as Covid fight continues in China’s biggest city