Sell-off in Chinese stocks overdone, ‘downside limited’ at this point, Hong Kong fund manager Value Partners says

Cheap valuations and bearish investor sentiment suggest that the recent sell-off in Chinese stocks could be overstretched, while stabilising economic data should provide grounds for more optimism, said Yu Chenjun, deputy chief investment officer of equities at Value Partners.

“There’s no need to be pessimistic at this point,” Yu stated. “Most of the risks have been taken into consideration, and the downside is quite limited.”

The MSCI China Index, which tracks 717 Chinese companies listed at home and abroad, has declined 11 per cent since the end of July to close to a 11-month low, as Beijing’s piecemeal stimulus disappointed the market while the property crisis deepened. The price-to-earnings ratio of the gauge stood at 11.85 on average, the lowest in five years.

Overseas investors have sold a record US$17.5 billion worth of A shares during the past two months, trimming the net inflow this year to US$16.2 billion, according to data compiled by Goldman Sachs. Global funds’ China exposure is now at a decade-low, the US bank said.

“I think overseas investors are panicking, but it’s often during these moments of panic that we see a bottoming out of the market,” Yu said.