Shanghai could be getting ready for a 2007 performance replay. This year's expected profit margin growth for Chinese shares may be in the single digit. Analysts trust consumption and technology recovery after 12 months of weakness.
The Year of the Pig will be a lucky one for the Shanghai, so much that the Chinese financial hub stocklist may be in for a 2007 performance replay.
According to historical data, on average the years of the Pig tend to come with a positive stock performance, said Jian Shi Cortesi, portfolio manager for Gam Investments Asian and Chinese shares. As a matter of fact, the last time the MSCI China index recorded a 66.6% growth, and the Shanghai Composite gained 98%, was 12 years ago.
2018 closed with a correction of over 30% against the beginning of last year's peak. "From our point of view, there are many known and priced negative factors in the Chinese stock market now," continued the analyst. "The ratings experienced a very big drop – 11 times the forward P/E ratio when including internet related bonds, and 8 times when leaving them out. Not to mention that the government is now more active in supporting the economy".
2019 could be the year Chinese shares growth hits the single digit, highlighted Ga. Some progress in the China-US trade negotiations could change the sentiment from "very negative" to "less negative".
"We believe it could be enough to get the Chinese P/E ratio to bounce off the current level. Both factors together give us a positive forecast on 2019 Chinese stock market performance," added Jian Shi Cortesi.
According to the analysis, Chinese shares started the year with a dividend yield between 2.5% and 3%. "Our January 2001-December 2017 time frame analysis shows that whenever there are similar dividend yield figures, the MSCI China index generates positive returns over the following 12 months in 80% of cases. Although a perfect replay of 2007 solid performance may be difficult to achieve, the chances of 2019 being positive year for Chinese shares look real enough".
Gam fosters "a greater trust in China's consumption and technology sectors", since they are expected to be driving the Chinese economy in the future. "Last year the two sectors stumbled over many obstacles and brought home a rather weak performance, leading to a ratings drop and an expectations los. They may experience a recovery in 2019. We believe it could be a good time to start a process of careful selection on bonds, in particular in the Internet and automobile sectors".
(Source:Class Editori)
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