MSCI China: Good entry point for several attractive stocks – HSBC

Both onshore and offshore Chinese equities fell in March amidst a global sell-off on coronavirus worries. On a year-to-date basis, all sectors in MSCI China were in the red with the exception of software & services companies, while energy companies were the biggest index laggards, analysts at HSBC brief.

Key quotes

“Following the sell-off, valuations are now moving into an attractive range in terms of PE and earnings yield vs. bond yields. However, the key question remains around how long and how much the global outbreak is likely to impact the demand for Chinese goods.” 

“According to market consensus, the 2020/2021 earnings growth is 8.5%/12.9% for MSCI China, down from 10%/13% a month earlier. The forecast for CSI 300 is 15.2%/12.4%, compared with 15%/13% at the end of February. At the same time, the PE ratio of CSI 300 and MSCI China index is currently trading at 12.1x and 12.2x, respectively, down 5%-10% from the previous trough.”

“We are more constructive on our positioning in the longer term as the recent volatility has given rise to significant mispricing opportunities, creating a good entry point for several attractive stocks.”