China Still Offers Value; No Hard Landing: Strategist
Concerns about a slowdown in China may have sent some investors scurrying for the exits this week, but one strategist is staying put.
"China is looking interesting right now," Kelvin Tay Chief Investment Strategist (Singapore), UBS Wealth Management told CNBC on Tuesday.
The Shanghai Composite fell 1 percent on Tuesday, after a near 3 percent fall the day before. It was the market's worst performance in 4 months. Stocks were hurt byHSBC's China purchasing managers index (PMI) reading for May, which fell to a a 10 month low of 51.1, and sparked fears of a slowdown.
Tay, however, sees this as an opportunity to accumulate stocks selectively. He believes there is still value to be had, especially in Chinese banks.
According to him, the MSCI China index trades at a forward price to earnings (PE) ratio of 10.8, placing it at a significant discount to the MSCI Asia ex-Japan Index, which trades at 12 times.
Markets, he said, can't be going up all the time, "so I think this is a nice technically needed adjustment downwards."
Tay attributes the current soft patch in China's economy to an ongoing inventory adjustment and not signs of a hard landing.
"You can't have industrial production treading upwards seemingly endlessly," he explained, adding that "the slowing of the Chinese economy is also a sign that tightening over the last few quarters [is] taking effect with money supply and credit growth slowing dramatically."
He expects Beijing to continue tightening, albeit moderately, as inflation peaks in June and he expects the current weak market sentiment to bottom in the current quarter.