Foreign Institutional Investors See A-Shares as Overvalued
Foreign investors deem the price to earnings ratio amongst companies listed on the Shanghai exchange too high.
Wu Ying 20 May 2009
(Caijing.com.cn)Interest from foreign financial institutions in buying A-shares has waned beginning in April as many of them believe stocks on China’s bourses are overvalued, UBS Securities managing director Joseph Chee said May 19.
Chee said at a media briefing here that foreign investors deem the price to earnings ratio amongst companies listed on the Shanghai exchange too high, but added that they remain optimistic about Chinese markets in the long term.
“Institutions are less interested in meeting quotas granted under the Qualified Foreign Institutional Investor scheme at this stage, but many of them think the P/E ratio could be reasonable in the long term,” Chee said.
The QFII scheme was launched in 2003 and is the primary means for foreign investors to buy Chinese equities. In December 2007, the combined QFII quota was raised from US$10 to US$30billion.
The Shanghai Composite Index has jumped 47 percent this year, led by optimism over the government’s 4-trillion-yuan economic stimulus package. Banks also extended a record 4.6 trillion yuan in new loans in the first quarter.
However, Chee said the market faces issues like the expiry of lockup periods for a large number of shares in the second half of the year, and investors whose shares will become tradable may seek to cash out immediately if confidence in China’s recovery weakens, driving down share prices.
China’s GDP grew 6.1 percent year-on-year in the first quarter, and the country is aiming to achieve 8 percent growth over 2009. The government stimulus package has driven a 28.8 percent rise in fixed-asset investment to 2.8 trillion yuan, but investors will be concerned that small and medium-sized private enterprises are missing out on the benefits of the stimulus.
Demand for exports has also remained weak, falling 22.6 percent year-on-year to US$91.9 billion in April, and many exporters are continuing to struggle despite increases in textile, auto and steel export tax rebates. China also faces a tough task in attempting to stimulate domestic demand, without exacerbating the situation of oversupply faced by many industries that has kept prices and margins low.
Chee added that Chinese enterprises should seek overseas acquisitions as the global financial crisis has left many foreign companies keen to dispose of their assets in order to raise cash, while domestic financing costs have remained low to facilitate lending.
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Foreign Institutional Investors See A-Shares as Overvalued
Foreign investors deem the price to earnings ratio amongst companies listed on the Shanghai exchange too high.
Wu Ying
20 May 2009
(Caijing.com.cn)Interest from foreign financial institutions in buying A-shares has waned beginning in April as many of them believe stocks on China’s bourses are overvalued, UBS Securities managing director Joseph Chee said May 19.
Chee said at a media briefing here that foreign investors deem the price to earnings ratio amongst companies listed on the Shanghai exchange too high, but added that they remain optimistic about Chinese markets in the long term.
“Institutions are less interested in meeting quotas granted under the Qualified Foreign Institutional Investor scheme at this stage, but many of them think the P/E ratio could be reasonable in the long term,” Chee said.
The QFII scheme was launched in 2003 and is the primary means for foreign investors to buy Chinese equities. In December 2007, the combined QFII quota was raised from US$10 to US$30billion.
The Shanghai Composite Index has jumped 47 percent this year, led by optimism over the government’s 4-trillion-yuan economic stimulus package. Banks also extended a record 4.6 trillion yuan in new loans in the first quarter.
However, Chee said the market faces issues like the expiry of lockup periods for a large number of shares in the second half of the year, and investors whose shares will become tradable may seek to cash out immediately if confidence in China’s recovery weakens, driving down share prices.
China’s GDP grew 6.1 percent year-on-year in the first quarter, and the country is aiming to achieve 8 percent growth over 2009. The government stimulus package has driven a 28.8 percent rise in fixed-asset investment to 2.8 trillion yuan, but investors will be concerned that small and medium-sized private enterprises are missing out on the benefits of the stimulus.
Demand for exports has also remained weak, falling 22.6 percent year-on-year to US$91.9 billion in April, and many exporters are continuing to struggle despite increases in textile, auto and steel export tax rebates. China also faces a tough task in attempting to stimulate domestic demand, without exacerbating the situation of oversupply faced by many industries that has kept prices and margins low.
Chee added that Chinese enterprises should seek overseas acquisitions as the global financial crisis has left many foreign companies keen to dispose of their assets in order to raise cash, while domestic financing costs have remained low to facilitate lending.
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