China was never before this cheap in comparison to India, says HSBC

The global brokerage joins slew of others such as UBS, Nomura and Jefferies to increase its weight on China citing easing of headwinds and attractive valuations

China has never been this cheap versus India, global brokerage HSBC has said, while raising its weighting on the world’s second-biggest market from ‘neutral’ to ‘overweight’. HSBC joins slew of other brokerages such as UBS, Nomura and Jefferies to increase its weight on China citing easing of headwinds and attractive valuations.

“On a price-to-earnings (P/E) basis, China is not expensive. It is trading at a 12-month forward P/E of 12.9 times, down from as high as 17 times at the beginning of the year. China has never been this cheap versus India-–FTSE India is now trading at a premium of 95 per cent to China, a record high,” HSBC strategist led by Herald van der Linde said in a note on Tuesday.

China’s benchmark SSE Composite index is up only 3.6 per cent this year. In comparison, the benchmark Nifty 50 index has gained 30 per cent

“Investors are too bearish about China stocks – we think the baby is being thrown out with the bathwater. Yes, China is struggling with growth and a stronger USD is not good news for China’s stock markets. But that’s now well-known and is priced in. Even good, blue chip stocks are now trading at attractive valuations,” said van der Linde.

An analysis done by Nomura shows the 12-month forward P/E and price-to-book (P/B) of 80 per cent of Indian stocks in the MSCI indices are now above December 2019 levels. On the other hand, the P/E and P/B of only 40 per cent of Chinese stocks is currently above December 2019 levels.

“We now see an unfavorable risk-reward given valuations, as a number of positives appear to be priced in, whilst headwinds are emerging. We, thus, downgrade India to neutral in our regional allocation and will look for better entry points given our still-constructive medium term view. We like China (significant underperformer seeing stabilising sentiment) and Asean (tactically laggard reopening play),” said Nomura said in a note dated October 23.