Investors are pricing in a crisis.
With concerns about a hard landing in China playing the starring role in the risk-off environment that’s dominated so far in 2016, it’s no surprise that equities in the world’s second-largest economy have fared particularly poorly.
In local-currency terms, the Shanghai Composite is down almost 17 percent this year, far underperforming the MSCI World Index’s 7.5 percent retreat.
“At the current distressed valuations in the H-share market, we think investors may have priced in meaningful probability of a hard-landing scenario in China and/or sizable renminbi depreciation,” writes Deutsche Bank Chief China Equity Strategist Yuliang Chang, referring to stocks listed on the Hong Kong Stock Exchange.
Valuations are extremely depressed, he notes, observing that the MSCI China’s 12-month forward price-to-book ratio, excluding American Depositary Receipts, currently sits at one times book—meaning investors are valuing the companies as just the stated sum of their assets.
Putting all this together, the conclusion is inescapable: Chinese stocks are especially out of favor at the moment.
Full article: Deutsche Bank: Chinese Stocks Are More Distressed Than During the Financial Crisis (Bloomberg Business)