ft.com > markets >
Remember me on this computer Sign in
Last week Morgan Stanley raised its China growth forecast to 9 per cent for 2012. On Monday it followed it up with a bullish note on Chinese equities.
The logic: with fears of a “hard landing” overdone, now could be the time to buy.
According to Morgan Stanley’s research, Chinese stocks listed in Hong Kong – the Hang Seng China Enterprises Index and the MSCI China – are near historic lows on a valuation basis. In the last 10 years, stocks have been this cheap only 4 per cent of the time, says Jonathan Garner, head of emerging markets strategy at Morgan Stanley in Hong Kong.
China is his top pick among emerging markets, in part because it is currently priced for a doomsday scenario in the economy. On a price to earnings basis, China is trading at a 20 per cent discount to Asia ex-Japan and a 12 per cent discount to global emerging markets. Usually, it trades at parity if not at a premium, says Garner.
China has definitely been left out of the global rally, up just 4 per cent in 2012 and still down 18 per cent since the start of 2011.
Meanwhile, developed markets have shone, with the S&P 500 up 12 per cent, Germany’s Dax up 18.7 per cent and the Nikkei 225 soaring 20 per cent so far this year. Many emerging markets have also done well. India and Brazil have both risen 13 per cent, and Turkey is up 22 per cent.
So where does the catalyst for change come from? Garner expects the “hard landing” scenario to gradually run out of steam, while subtle measures to boost the economy are already kicking in. Official PMI data, after all, recorded the strongest month in a year in March.
If you think gloom around China’s economy is overdone, now might be your chance.
Related reading: China equities set to offer an alternative, FT China & India: reading the PMI runes, beyondbrics Bankers bullish on Hong Kong IPO outlook, FT
An EM proxy - for how long?
Katherine Boo: Behind the Beautiful Forevers
© The Financial Times Ltd 2012 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
Read Full Article »