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.
That’s a lower valuation than it was during the financial crisis in October 2008, the European sovereign debt crisis in October 2011, or China’s interbank crunch of June 2013. Read more