Bernstein Quants Say China Momentum Stocks ‘Extremely’ Expensive

(Bloomberg) -- Anyone chasing momentum in China’s stock market should head for the exit.

That’s according to Sanford C. Bernstein’s quantitative strategist Rupal Agarwal, who says a pullback in Chinese equities is about to punish traders betting on the gains to extend. Among the MSCI China Index, such stocks look “extremely expensive and crowded” and may suffer in the event of a broad downdraft she expects to play out in the current quarter.

“The markets are now too synchronized to the U.S. market, which is definitely getting into an overbought territory,” she said in an emailed response to questions. “If the U.S. markets pull back, China or broader Asian markets will follow in-line, irrespective of managing the virus in a better way and improving macro data.”

Quantitative strategists slice and dice markets into buckets of style factors reflecting their growth prospects, financial health -- or their tendency to sustain recent price moves, known as momentum.

While chasing rising stocks has been a winning strategy globally this year, it’s been particularly successful in China’s domestic market, where participation from retail investors is greater than in the developed markets.

The MSCI China A Onshore Momentum Index has advanced 48% this year, nearly four times the gain in the broader MSCI China Index and about twice that of the Nasdaq 100.

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