Heading into 2017, China Remains Unattractive
Watch the video with Andrew Stotz or read a summary of the country profile on China.
Four Pillars of GDP: Driven by private consumption
Overall, the economy remains a high growth destination for many investors, due to its 6.88% growth rate in 2015. Private consumption remains the largest driver of growth followed by Investments. Though all four pillars below are contributing to GDP, net exports contribute the least.
EPS growth Back in the Black
The market is expected to return to double-digit EPS growth this year, after earnings fell in 2014 and 2015.
Yet stocks remain the second most expensive in Asia at 16x PE expected in 2017. Only The Philippines trade at a higher PE ratio.
A. Stotz Four Elements: China’s rank relative to Asia
Overall, China is somewhat less attractive in Asia considering all our four elements: Fundamentals, Valuation, Momentum, and Risk.
Fundamentals: With a moderate ROE of 12% expected in 2017, China sits slightly above the Asia average, which is positive.
Valuation: 2017 consensus estimates put the country’s price-to-earnings at 16x, a figure that is the second highest PE in Asia and thus fairly expensive. Additionally, a low average dividend yield of 2% won’t turn many heads.
Momentum: Earnings momentum remains poor in China.
Risk: China features a relatively low beta to Asia ex-Japan and offers only moderate volatility.
Strong performance in Materials and Consumer Discretionary
Top 3 largest sectors: Financials: 22% of the market. Industrials: 18%. Consumer Discretionary: 13%.
Best sector & stock: Telecom: +39%, China United Network Communications: +53.6%
Worst sector & stock: Information Technology: -0.9%, GuoChuang Software Co. : -27.2%
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