China began its Golden Week celebration (to celebrate the origin of the People’s Republic of China) in style. At the end of September, the Chinese government announced a vast recovery plan to try to reactivate an economy that is slowing its growth and the fury over the new measures has reached the country’s stock market, but is it really time to return to China?
The announcement of the budgetary recovery plan combined with the action of certain cities to soften the real estate market and revive the sector led investors to turn strongly towards Chinese stocks. The CSI 300 (which has no longer been listed since September 30 due to the celebrations) had its best session since 2008 on September 30 and was positioned as one of the most bullish indices in the world. The question hanging over the market is whether, once activity resumes, the Chinese stock market will continue on this path of optimism and whether it will be able to continue over time.
For the moment, the consensus of analysts which includes Bloomberg I believe that the Chinese stock market It only has 2% upside potential left for the following months. This performance contrasts with the two figures that experts predict for both the S&P 500 and the Stoxx 600. Even if the behavior of the Hang Seng (the Hong Kong index) is taken as a reference, which was not the case the closed panel This week, investors continued to position themselves on the Asian giant and the index once again recorded a revaluation of more than 10% in five days for the second consecutive week.
By Janus Henderson, Victoria Mio, director of China Equities, explains that this time the situation is different because “unlike previous efforts, the measures address not only monetary policy, but also the challenges of the real estate sector, the stability of the stock market” . and consumer confidence”. All this can, in your opinion, be the catalyst needed to restore confidence and unlock value in Chinese markets. Mio is calling on investors to reconsider their allocation to Chinese stocks, as they currently represent an “attractive and strategic investment opportunity.”
From Blackrock they point out that they are “slightly overweight” in Chinese stocks and add that “it is possible that there will be significant fiscal stimulus and that investors position themselves even more in the Chinese market being given that Chinese stocks are heavily discounted. Still, we’re ready to pivot,” but they warn “we are cautious in the long termgiven China’s structural challenges. ” For his part, as early as April, Paul Diggle, chief economist, emphasizes that the measures may not respond to the structural challenges presented by its economy, “but there is no doubt that this is a change from to China’s structural challenges. its previous progressive approach to economic policy support. This should support growth and risk sentiment towards China,” he adds.
The Chinese stock market in ratios
In recent years, investments in China have been supported by profit growth which has led to the purchase of securities on the stock market at much more attractive prices than the rest of the markets. However, now the CSI 300 is purchased at a PER (times the profit reflected in the share price) of 14.67 times in 2024, even higher than the multiplier offered by the European stock market of 14.57 times. It only stands out in this ratio with expected profits for 2025, when the multiple increases by 13 times.
However, despite the index’s low price (it stands out from the 23.6 times the S&P 500 has been purchased in 2024), its leverage data sets off alarm bells. The CSI 300 has leverage (the number of times you are leveraged to your profits) up to 7.2 times in 2024. The figure is worrying and even more so if we compare it to the 2.3 times of the Stoxx 600 or the 1.4 times of the main Wall Street index. In fact, over the past decade, the debt level of Chinese selective companies has increased exponentially, and since 2016 (the first time it was more than 5 times), debt has increased by 40%. . This would be one of the most concerning points to look out for when investing in the asian giant. Some companies even exceed 30 times leverage. An example is 360 Security Technology, Huatai Securities or China Merchants Securities, which have ratios of 77.1 times, 39.4 times and 34.4 times, respectively.
Beyond this apprehension, the Chinese market is also becoming a dividend market. From 2022, the profitability of the index exceeds 2% and, charged to 2025 profits, Chinese compensation performance is close to 3%, the highest figure in the last decade. This also exceeds that of the American market (more inclined to reward its shareholders through share buybacks) and threatens the profitability offered by the European stock market.
