In a June report, Societe Generale noted that index levels imply a 25 percent drop in earnings per share (EPS) over the next 12 months, compared with average EPS growth of 13 percent over the past five years, something it called "fairly pessimistic," adding "most, if not all, of the bad news seems priced in."
China's markets have been undermined by slowing economic growth as well as concerns over bad debts and the shadow banking and property sectors and its stock indexes have certainly been a losing proposition. The Shanghai Composite has fallen more than 30 percent over the past five years, even as other global markets have rallied solidly off lows touched during the global financial crisis.
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While China shares have run up quite a bit since Societe Generale went to longer positions at the start of the second quarter, "we think there's another leg higher," he said. Societe Generale expects the H-Share index will reach 11,000 by year end. On Friday, it was trading around 10,287.
Stear tips another bullish sign for the China market: initial public offerings (IPOs) are picking up.
"What you typically see is that the busiest time for IPOs is when the market is bullish," he said, noting the recent offerings have been attractively priced and have met good demand. "It's a sign for me that our more bullish view has been justified," he said.
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Last week, in the first new listings in more than four months, three mainland companies made trading debuts on the Shenzhen Stock Exchange after drawing robust demand. Around 100 IPOs are expected to get regulators' approval this year, for a full-year tally of as much as 150.
Societe Generale isn't alone in seeing better days ahead for China shares.
Last week, Goldman Sachs said it expects the CSI 300 index to rise 5 percent in the third quarter and 10 percent by year end. The bank only expects EPS growth of 5 percent to take into account the risks from the property sector in the second half of the year.