China is currently in its cheapest state as compared with India: HSBC

Keeping in line with its stance, HSBC on Tuesday, October 26 upgraded its weightage of the Chinese equities from ‘neutral’ to ‘overweight.’ 

Analysts at Europe’s biggest bank HSBC stated that China has never been this cheap in comparison to India. HSBC is one of the few investment firms that have optimistic expectations regarding the Chinese market, asserting that the worst of the regulatory storm in Beijing has passed and the country is now on a road to recovery. 

Keeping in line with its stance, HSBC on Tuesday, October 26 upgraded its weightage of the Chinese equities from ‘neutral’ to ‘overweight.’  Few other investment firms such as UBS, Nomura and Jefferies have also expressed their bullish expectations for Chinese equities, stating that the market crunch in Beijing is easing. 

While commenting on the attractive valuation that the Chinese market currently offers, HSBC stated that China is not that expensive on a price-to-earnings (P/E) basis. It is trading at a 12 month forward P/E of 12.9 times, a decline from the beginning of the year when it was trading 17 times high. 

Meanwhile, FTSE India is now trading at a premium of 95 percent to China, a feat HSBC strategist led by Herald van der Linde has termed as a record high. This prompted the HSBC analysts to state that “China has never been this cheap versus India.”

Comparing the benchmark indices of the two countries, China’s benchmark SSE Composite index saw an increase of only 3.6 percent this year. Compared to this, India’s benchmark Nifty 50 index grew 30 percent. 

Moreover, an analysis done by investment firm Nomura revealed that the 12-month forward P/E and price-to-book (P/B) of only 40 percent of Chinese stocks on the MSCI indices are currently above the level of December 2019. However, the percentage for India was reported to be double for India, with 80 percent of stocks currently above December 2019 levels. 

This year MSCI’s China index has fallen close to 12 percent compared to a 15 percent rise in MSCI’s world stocks index. The reason for beaten share prices is spread across the crackdowns affecting the technology sector’s performance to property borrowing.

However, HSBC remains hopeful, stating that “investors are too bearish about China stocks.” It also assured that even blue-chip stocks in the country are now trading at attractive valuations despite the increasing value of the USD and slow growth pace in the country. 

“As growth is slowing, we expect Beijing to introduce more targeted easing measures in the coming months,” said the HSBC analysts.

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