According to Tai Hui, Chief Market Strategies at JPMorgan Asset Management, “Mainland Chinese Equities, or A Shares, tend to bottom after falling 25% to 30%”. Shanghai benchmark is down nearly 20% from January High!
Four reasons to buy China Equity:
- Surging Buybacks – Buybacks on China Equity have hit a multi-year high in mainland and Hong Kong markets. Historically, the buybacks would signal that stocks have hit the bottom or about to reach it soon. Buybacks help support the market and can show management believe shares are oversold.
2. Returning Flows – Foreign investors are buying mainland shares again through Hong Kong-China stock links. Northbound purchases waned late last month after MSCI Inc.’s inclusion of mainland shares in its benchmark gauges spurred A-share buying leading up to the event. Southbound flows have also picked up, with mainland investors turning to net buyers this month from net sellers in June.
3. Valuations at Multiyear Low – The Shanghai Composite Index is trading at earnings multiples below the levels when it hit troughs in 2015 and 2016.
4. Widening Underperformance – The lagging of Chinese stocks to their US peers has reached levels seen in mid-2014.
Bloomberg News, 2018-07-28, “China Equity Bulls May Find Some Reassuring News in These Charts”