Friday, March 29, 2024
HomestocksWhy China stocks aren’t as cheap as you think

Why China stocks aren’t as cheap as you think

China stocks' low valuations may appear mouthwatering to bargain hunters, but if you scratch the surface, the market may not be as cheap as it looks.

Certainly, the valuations look flattering, with Nomura saying "China remains Asia's deepest-discounted market." Shares there are trading at around 8.6 times 12-month forward earnings, 28 percent below the long-term mean of 12 times, according to data from Nomura.

But others say that while the broad market picture might look attractive, things don't look as positive up close.

(Read more: Is China the best of a bad job?)

"China might be significantly more expensive than headline P/E (price-to-earnings) valuations suggest," HSBC said in a note.

"Valuations look very attractive on the surface, but these are flattered by the financial sector which accounts for 40 percent of index earnings," HSBC said. It estimates excluding banks, China stock valuations are a bit below 12 times earnings.

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