Buy China Stocks, Says Man Who Called Emerging Market Rout

(Bloomberg) -- Now is the time to buy Chinese equities, according to a fund manager who last month correctly predicted the sell-off in emerging markets had further to go.

Nader Naeimi, head of dynamic markets at Sydney-based AMP Capital Investors Ltd., is looking to add Chinese shares listed on the mainland and in Hong Kong, saying they are cheap and under-owned. He manages a $1.2 billion fund and has about 5 percent of his global portfolio in Chinese equities. AMP has $138 billion of assets under management.

“Buying the market when sentiment is depressed and everyone is selling often pays off,” Naeimi said in an interview. “The best time to buy a market is when no one wants it.”

Buy China Stocks, Says Man Who Called Emerging Market Rout

Chinese shares have tumbled this year. The Shanghai Composite Index is among the world’s worst performing equity benchmarks, and the slide gathered pace in October as it posted its biggest monthly loss since June. The trade dispute with the U.S., China’s slowing economic growth and pressure from forced selling are among the factors weighing on the country’s markets.

Naeimi’s bullishness is rare: foreign investors are exiting Chinese stocks at the fastest pace on record -- offloading an average 1.1 billion yuan ($158 million) of A shares a day as of Oct. 30 via the Shanghai and Shenzhen trading connects.

The gloom surrounding China markets is due to lack of confidence rather than fundamentals, Naeimi said. Investors were optimistic at the start of the year, when the Shanghai Composite and the Hang Seng China Enterprises Index both hit more than two-year highs. Positives included the addition of A shares to MSCI Inc.’s universe, but China’s deleveraging drive and the trade war hurt sentiment, he said.

China’s rescue measures are going in the right direction, according to Naeimi, as authorities are doing more than just infrastructure spending. They’re also cutting taxes and providing smaller businesses with liquidity support. Economic figures could improve as early as the fourth quarter, after credit growth showed signs of picking up, he said.

Top Fund Manager Eager to Buy China Shares Despite Market Slump

In one of the latest moves to stem the rout, Chinese regulators said they’ll increase stock market liquidity and encourage long-term funds to invest in the market. That helped lift sentiment Tuesday, as the Shanghai Composite shrugged off early losses to rise as much as 1.8 percent. The gauge extended gains Wednesday, rising 1.4 percent at the close, as foreign investors bought 5.7 billion yuan of A shares via the exchange links, the most since June 4.

“Because expectations are so low, it doesn’t take much positive news to turn,” said Naeimi. “It’s easier to surprise on the upside.”

Buy China Stocks, Says Man Who Called Emerging Market Rout

Valuations and technical indicators are looking attractive, he said. The Shanghai Composite is trading at valuations below its 10-year average, while the ratio of mainland companies hitting new one-year lows has dropped to 4 percent from about 65 percent in mid-October, according to data compiled by Bloomberg.

Naeimi expects consumer stocks to do well as the government rolls out tax breaks and more safety-net measures for households. He also likes banks, insurers and health-care stocks among other sectors.

To contact Bloomberg News staff for this story: Amanda Wang in Shanghai at twang234@bloomberg.net;Mengchen Lu in Shanghai at mlu157@bloomberg.net;Helen Sun in Shanghai at hsun30@bloomberg.net

©2018 Bloomberg L.P.

With assistance from Editorial Board