Chinese equities still the best performers in Asia, experts say

Low valuations, robust fundamentals offer attractive pickings for investors

Lower valuations and consolidating fundamentals make Chinese companies the most attractive options among all Asian equities, along with a stabilizing economic growth in China, capital market experts in Hong Kong said on Tuesday.

"The accelerating reforms in China this year are very positive for a mid- to long- term outlook. Structural reforms are creating several new growth opportunities, which are missing in the global market," said Andrew Swan, head of Asian equities at global money manager BlackRock.

"In the face of stabilization in the last two weeks, we see a shift in positioning, given that fundamentals in China are improving and valuations for Chinese companies, especially those in the investment grade, are comparatively low," said Neeraj Seth, head of Asian credit at BlackRock.

China's Purchasing Managers Index returned to a positive terrain for the first time in seven months, indicating that the manufacturing sector is expanding again. An HSBC survey released on Monday indicated that China's June flash PMI rose to 50.8 in June from May's final reading of 49.4. Readings above 50 mean the economy is in the growth territory.

"We are relocating into stocks that investors don't notice and where the expectations are low," Swan said. "They are going to benefit from the improving environment. This could be the first time in three years that Asia will deliver on these expectations." He added that the obvious opportunities are in energy stocks and the industrial sector.

"For the energy sector, we see opportunities in the overall value chain. Due to over-capacity and high leverage, the industrial sector has been the worst performer in Asia for a long period of time. But in China particularly, supply is consolidating and businesses have started to focus more on cash flows instead of just growth. That's good news for shareholders. There are cheap companies that have been through difficult times and it's about to change."

However, every reform has its downside. In the case of China, decelerating economic growth is the cost. Growth momentum in the first half has been slow until lately and the real estate sector particularly has been marching toward adjustment.

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