Shanghai: China's stocks, the worst performers among the largest emerging markets in the third quarter, are poised to rebound as investors say shares are too cheap to pass up with economic growth accelerating.
"They are the best value equity play anywhere in the world," said Robert Froehlich, senior managing director at Hartford Financial Services Group, which oversees $352 billion (Dh1,292 billion.)
"Valuations and the Chinese consumer are a one-two punch."
The Shanghai Composite Index surged 4.8 per cent at the 3pm close on Friday as markets in China opened following an eight-day holiday. The benchmark index lost 6.1 per cent in three months amid concern that a lending slowdown would stifle the world's third-largest economy. Stock gauges in Brazil, Russia and India — the three other so-called BRIC nations, each gained at least 18 per cent in the same period, the first time since the end of 2007 that they've risen as Chinese shares fell.
Equities in the Shanghai index traded at 30.85 times its companies' reported profit through Thursday, down from this year's peak of 39 and the smallest premium in a year versus the MSCI EM Index of developing countries, whose shares traded at 20.6 times earnings, data compiled by Bloomberg show. China's benchmark gauge will gain as much as 32 per cent in the fourth quarter, according to the average of estimates by China Galaxy Securities Co, GF Securities Co and Shenyin & Wanguo Securities Co, three of China's six biggest brokerages.
"China is where we are putting most of our money out of the BRICs," Peter Schiff, president and chief global strategist for Darien, Connecticut-based Euro Pacific Capital, whose clients have more than $2 billion in assets, said in a telephone interview.
"Valuations are certainly better there. That is where the growth and profits are going to be."
Schiff, who predicted the US recession in 2006, said he is recommending "domestic-demand plays" such as Dah Chong Hong Holdings Ltd, which owns car dealerships and food and consumer products outlets, and Xtep International Holdings Lt, a sporting goods retailer. Both companies trade in Hong Kong.
Most global funds trade in Chinese shares through Hong Kong-listed stocks, American depositary receipts and exchange traded funds because of investment restrictions on the mainland.
China's gross domestic product expanded 7.9 per cent in the second quarter.