Citi har revurderet aktiekurserne på en række kinesiske aktier, især tech, ligesom banken har revurderet en række amerikansk tech-aktier. Nedvurderingen af de kinesiske aktier – fra overweight til neutral – skyldes en række stramninger for kreditgivninvgen og tilsynet med tech- og finansvirksomheder. Men på længere sigt ser Citi positivt på de kinesiske tech-aktier.
The Repricing of Chinese Equities
Just as we have seen a recent repricing of tech shares in the US, we have also seen a repricing of tech and consumer shares in China. This negative performance was driven by a broad tightening in credit and regulatory policies that Citi Global Wealth Investments (CGWI) identified in January when we reduced our China allocation down from overweight to neutral.
The correction in Chinese equities appears much more advanced than in the US and have priced in a lot more potential bad policy news. Since February 17th, when global markets began to correct, MSCI China has fallen 18%, while A-shares were down by 10%.
China is also among the few global markets that have recorded a year-to-date decline. This underperformance brings the MSCI China’s forward PE ratio to 15x, versus the US at 21x. This 29% (China/US) valuation gap is about half standard deviation below the 15-year average reading.
Sources of Concern: Credit Tightening and Regulation
The main culprits for the recent equity underperformance are active credit policy tightening and substantive regulatory changes. On the credit front, there are general worries about certain corporate credits, but overall credit conditions are not significantly worse.
Aggregate new credit in the past 12 months up to April amounted to 29% of GDP, which is down from 34% last November. The reduction in new credit so far is consistent with the drop in valuations of Chinese equities. While a further decline in new credit to GDP could likely weigh on equities, Citi analysts estimate that the implied valuation impact of less credit in a period of rising earnings represents less than a 10% downside from current index levels.
Investment Strategy
Citi analysts see this cyclical shift in Chinese markets to be nearing its end and not a sign of continued distress. Thus, there are opportunities in Chinese equities given their relative valuations, particularly in technology where China is determined to accelerate its innovation and development in competitive global industries.
Given the significant size, earlier stage of development and comparatively younger demographics of its region, China has room to sustain growth for more than a decade. This means that forward-looking valuations of its shares are favorable in Citi’s view.
