Propose the idea of investing in Chinese equities these days, and the suggestion sparks fierce debates.
Whether the market looks cheap after a recent de-rating or should be shunned due to concerns about China’s inflation problem remains up for discussion. And opinions on the matter vary. “When it comes to China, there are two camps and they are quite polarised. Some investors are very bearish and others are gung ho,” remarks Jason Pidcock, manager of Newton’s Oriental and Asian Income funds.
To enthusiasts, the case for investing in China is persuasive. The country’s stock market exhibited fledgling signs of improvement during the first quarter of the year, proving its ability to rebound from a sluggish period of underperformance against much of Asia as well as global emerging markets, which dragged on from 2009 until last year. And it trades on an attractive forward price-to-earnings ratio of 11.2 times next year’s earnings while rival markets such as India, which trades at 14.5 times forward earnings, and the US at 13 times next year’s earnings, look a tad expensive.