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Spotlight on China
What does the chart show?
The chart shows the price-to-earnings (P/E) ratio for the MSCI China index (Chinese equities) relative to the MSCI ACWI index (global equities). The P/E ratio measures the relationship between a company’s stock price and its earnings per share (EPS), giving investors a sense of the valuation of the company, or broader market, and how much investors are paying for the earnings of a business. Companies with high P/E ratios are often growth stocks and can, at times, be overvalued compared to their current fundamentals. Similarly, companies with low P/E ratios are referred to as value stocks and are sometimes considered as undervalued. Over the last twelve months, the valuation of Chinese equities relative to broader global equities has declined to sit at historic lows.
Why is this important?
Investors in Chinese equities — both onshore and offshore listed names — have been spooked by the long-running crackdown by President Xi’s administration on companies in the technology, property and education sectors; default concerns in the property sector; lockdowns in wealthy cities, including tech-focused Shenzhen, as the country grapples with rising Covid cases; slowing economic growth and more recently, concerns over China’s support for Russia in Ukraine, which it denies. MSCI China’s relative valuation sat at its lowest level in over fifteen years this week as US regulators threatened to delist several Chinese companies (listed in the US) unless they provided detailed audit documents that supported their financial statements. However, Chinese stocks performed a major U-turn on Wednesday and rebounded very strongly (the Hang Seng rose +9% with tech stocks up significantly more) as China’s top economic official intervened to reassure investors. The State Council said Beijing will take strong measures to boost the economy this quarter, would take steps to prevent further risks building in the property market and will keep the stock market stable, though details of such stimulus measures didn’t appear to be provided. There is certainly a lot of bad news already in the price of Chinese equities. These historically low relative valuation levels certainly warrant a closer look at the region.
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By Mondial DubaiWhat does the chart show?
The chart shows the price-to-earnings (P/E) ratio for the MSCI China index (Chinese equities) relative to the MSCI ACWI index (global equities). The P/E ratio measures the relationship between a company’s stock price and its earnings per share (EPS), giving investors a sense of the valuation of the company, or broader market, and how much investors are paying for the earnings of a business. Companies with high P/E ratios are often growth stocks and can, at times, be overvalued compared to their current fundamentals. Similarly, companies with low P/E ratios are referred to as value stocks and are sometimes considered as undervalued. Over the last twelve months, the valuation of Chinese equities relative to broader global equities has declined to sit at historic lows.
Why is this important?
Investors in Chinese equities — both onshore and offshore listed names — have been spooked by the long-running crackdown by President Xi’s administration on companies in the technology, property and education sectors; default concerns in the property sector; lockdowns in wealthy cities, including tech-focused Shenzhen, as the country grapples with rising Covid cases; slowing economic growth and more recently, concerns over China’s support for Russia in Ukraine, which it denies. MSCI China’s relative valuation sat at its lowest level in over fifteen years this week as US regulators threatened to delist several Chinese companies (listed in the US) unless they provided detailed audit documents that supported their financial statements. However, Chinese stocks performed a major U-turn on Wednesday and rebounded very strongly (the Hang Seng rose +9% with tech stocks up significantly more) as China’s top economic official intervened to reassure investors. The State Council said Beijing will take strong measures to boost the economy this quarter, would take steps to prevent further risks building in the property market and will keep the stock market stable, though details of such stimulus measures didn’t appear to be provided. There is certainly a lot of bad news already in the price of Chinese equities. These historically low relative valuation levels certainly warrant a closer look at the region.