YICAI | Chinese Stocks Outshine Global Peers as Solid Macro Data Attract Investors

(Yicai) May 10 -- Chinese stocks performed better than those of any other region in the past month and week due to improving macroeconomic conditions, including exports.

The MSCI China Index, which includes stocks of Chinese firms listed on the mainland and even offshore, returned 9.5 percent, in the month leading to May 7. The Hang Seng Index, the main indicator of market performance in Hong Kong, rose by 8.9 percent. In comparison, the MSCI World Index and the MSCI Emerging Markets Index gained only 6.7 and 4.2 percent, respectively. Since Feb. 2, mainland-listed shares edged up 4.8 percent even though lagging behind offshore-listed stocks of Chinese companies.

China's exports climbed 1.5 percent to USD292.5 billion in April from a year ago while imports rose by 8.4 percent to USD220.1 billion, exceeding market expectations, according to customs data released yesterday.

Stock markets and the yuan's foreign exchange rate climbed that day. The Shanghai Stock Exchange Composite Index edged up 0.85 percent to top 3,150 points and the Hang Seng Index exceeded 18,500 points to close 1.2 percent higher. The offshore forex rate of the yuan fluctuated around the threshold of 7.2.

Capital markets are rebounding because China's macroeconomic conditions, including manufacturing, are showing signs of stabilizing this year while regulators are working to reduce stock markets' volatility, according to analysts.

The new orders sub-index of China's manufacturing purchasing managers' index has remained in expansion for two straight months till last month while industrial production and fixed-asset investment were also better than expected.

Moreover, global quantitative and hedge funds have been returning to the Chinese market since March. After the weight of investors' China positions dropped to a record low in comparison to the corresponding benchmarks in January, outflows of funds began to ease.

In the past three weeks, the MSCI China Index has continued to rebound, and the price-earnings ratio is about 10 times, reducing the discount to less than 20 percent from over 30 percent in comparison to the MSCI Emerging Markets, and narrowing to nearly 35 percent from about 50 percent versus the MSCI Japan Index, said Wang Ying, chief market strategist at Morgan Stanley China.

Sources from investment banks overseas said to Yicai that foreign funds are definitely participating in the recent surges as their portfolios are becoming less underweight in Chinese stocks and they tend to hold onto such purchases while selling equities in other parts of Asia to satisfy investors' redemption demand.

Despite the partial valuation fixes, maintaining the recent upward trend still hinges on domestic fundamentals, and especially improvements in profitability, Wang added.