After the recent sell-off in Chinese equities, investors who are now interested in entering the market at a lower price level should consider China H-Shares-related exchange traded funds as a cheap play.
Looking at valuations, Shanghai Composite and the small-cap Shenzhen Composite are still relatively expensive, even after the correction, trading at an average price-to-earnings ratio of about 20 and 50 times, respectively, reports Jenny Cosgrave for CNBC. [Contrarians See Opportunity After China Stocks, ETFs Plunge]
The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR) , which tracks large- and mega-caps on the Shanghai and Shenzhen exchanges, is trading at a 16.4 P/E. The Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap Fund (ASHS) , which covers a group of large- and mid-cap Chinese A-Shares, shows a 39.4 P/E.
Over the past three months, ASHR dropped 18.3% and ASHS fell 11.6%. However, ASHR still rose 7.0% and ASHS jumped 38.6% year-to-date. [After Volatility, Opportunity in A-Shares ETFs]
On the other hand, Goldman Sachs chief global equity strategist Peter Oppenheimer pointed out that there are more attractive valuations in blue-chip, large-cap Hong Kong-listed Chinese companies.
For instance, the iShares China Large-Cap ETF (FXI) , the largest China-related ETF that tracks Chinese companies listed on the Hong Kong stock exchange, has a 11.2 P/E. Similarly, other China H-shares ETFs options include the SPDR S&P China ETF (GXC) , which has a 11.7 P/E, and the iShares MSCI China ETF (MCHI) , which has a 11.8% P/E.
Over the past three months, FXI declined 20.4%, GXC dropped 17.6% and MCHI decreased 19.2%.
“You have to take quite a nuanced view on China, I think it is important to emphasize there are different parts of China that are trading at very different multiples,” Oppenheimer said on CNBC. “The smaller cap stocks at the A-share market are still trading at high 20s and that is very expensive by historic standards, whereas if you look at the blue-chip companies and those listed on Hong Kong, they tend to trade at multiples of 9.5/10 times and are relatively cheap by historic standards.”
iShares China Large-Cap ETF
For more information on China, visit our China category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.