Growth remains relatively solid in Chinese domestic retail sales and government spending on modernization projects despite a cyclical slowdown in the country due to the impact of monetary tightening in China and lower demand for exports resulting from the recession in Europe and subpar growth in the global economy, says Khiem Do, Head of Asian multiasset for Baring Asset Management in Hong Kong.
“Our research points to an annualized rate of growth, which will be closer to about 8% in 2012. The latest published annualized quarterly growth in Q1 2012 was 7.5%, probably marking the low point of this economic down cycle,” he said. “The spectacular GDP growth rate of 9% to 12% p.a. over the past 20 years, regrettably, is unlikely to be repeated.”
Do says within the Chinese market universe, he likes technology, especially, software and distribution, as well as energy, and property developers within the financials sector. He adds that property share prices are particularly undervalued, resulting from developments, such as monetary tightening of the PBOC combined with the imposition of strict rules on the property sector.
“Moreover, the Chinese equity market valuation is cheap versus the region and its own history, i.e., it is now trading at less than 10 times 12-month forward p/e. It appears to have discounted a lot of potential issues advocated by the pessimistic commentators,” Do said. “In actual fact, in aggregate, earnings per share in China continued to advance over the past 12-month period, compared to a number of other Asian markets, which saw declines.”
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