The old adage in the stock market is never try to catch a falling knife. With the Shanghai Composite Index at levels not seen since the aftermath of the financial crisis, many investors are steering well clear of Chinese stocks.
Liu Jin | AFP | Getty Images
A local investor watches the share-prices index display at a stock brokerage in Shanghai.
But Stephen Sheung, Investment Strategist at SHK Private, thinks this is the perfect time to buy Chinese equities . “We still see a rebound in the Chinese economy over the course of the year and equities warrant a higher valuation than now,” Sheung told CNBC Asia’s “Squawk Box.”
He added that China’s cautious approach to stimulate the economy will result in a gentle re-acceleration of economic growth, but investors should not make the mistake of comparing Beijing’s recent efforts to stimulate the economy with the massive $586 billion stimulus program of 2008.
Policy Lag
“This time around, the policies are not coming directly from Beijing, but more so at the provincial level. The Chinese government is trying to get more private capital to be more involved in the investment projects so the policy lag might be longer,” said Sheung.
Beijing — wary of stoking inflation and reigniting property speculation — is using a lighter hand with stimulus this time around. Despite mounting evidence the economy is grinding lower, the central bank has been quiet since last cutting interest rates in July.
“Chinese GDP in the next few quarters will be at a more stable and calm level in terms of pick up. You might have to wait until November to December to actually see things turn around, but when that comes, you'll see a cyclical pick up in (corporate) earnings and the GDP,” said Sheung.
Until then, he is advising investors to take advantage of China’s economic downtime and get stocks on the cheap.
“Valuations are the solid foundation for Chinese equities. What investors have to do right now is really look ahead,” he said.
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