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Factor Investing

Chinese Stocks Get a Jolt

By Pradipta Chakrabortty, Analyst and Portfolio Manager | October 17, 2024

Chinese stocks in September had their best week since the 2008 financial crisis after officials unveiled a new set of stimulus measures. The MSCI China Index surged 25% in just the last nine trading days of the third quarter, erasing 20 months’ worth of losses. Unlike other stimulus measures over the previous two years, this one was more comprehensive and included two key financial measures: a 50 basis point cut in the reserve requirement ratio for banks and a 20 basis point drop in the seven-day reverse repo rate.

There were additional measures aimed at boosting the real-estate sector, which rebounded by about 50% in late September, as seen in the chart below. The policy announcements included cutting mortgage rates for existing homeowners by as much as 50 basis points and cutting the down payment requirement for second home purchases by 15%.

For the equity market, there are now 500 billion renminbi swap facilities for brokers and asset managers to fund stock purchases, with regulators announcing another 300 billion renminbi relending facilities to fund share buybacks. This led to a wide rally across most Chinese stocks, but the gains were more prominent in brokers and insurance companies that benefit most directly from these announcements.

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Factor Investing

Indian Stock Valuations at All-Time High

By Scott Crawshaw, Analyst and Portfolio Manager | July 23, 2024
Investors continue to pour into the Indian stock market. The Nifty 50 Index, up more than 10% year to date, continues to reach new highs. Much of that is due to gains from cheap stocks, including many state-owned enterprises (SOEs) benefiting from government spending. Finding high-quality companies in the Indian market at attractive valuations therefore has become difficult.

One way to understand valuations is the required rate of return, which measures the minimum return for which investors will be willing to allocate capital. An outside view that we refer to is a valuation framework from UBS’ data-analytics platform HOLT that backs out the implied required rate of return investors are demanding from securities in the market, referred to as the market implied yield. At a country level, India’s median market-implied yield of 1.4% is at an all-time low for India and an all-time high premium relative to the broader EM index.

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Fundamental Analysis

Quality Is Becoming More Affordable in China, Less So In India

By Pradipta Chakrabortty, Analyst and Portfolio Manager | April 17, 2024

While challenges in China persist, Chinese companies look better than China’s economy.

Some key parts of the Chinese economy continue to stabilize. Manufacturing activities expanded in March for the first time in six months, led by new orders from domestic customers as well as by export orders. The government is pushing for more domestic production in strategic industries such as green technology and advanced manufacturing. Growth in services activities has remained good, with travel and tourism continuing to rebound. We are also seeing increasing localization as Chinese companies prefer Chinese suppliers over multinational corporations to de-risk their own supply chain. This is leading to domestic market-share gains for many companies. Finally, valuations for some high-quality companies look compelling at these levels.

Quality growth stocks in China have derated significantly since 2019 and are now trading at a nearly 40% discount to developed-market counterparts and emerging markets (EMs) as a whole. Conversely, while valuations of Indian companies have moderated slightly over the past year, they continue to be expensive relative to the rising valuations in developed markets. Quality growth stocks in India still trade at a significant premium to other EMs.

India’s evolving economy is promising, as witnessed by our analysts on a recent trip to the country; however, the stock market rally in response has probably gone too far, especially with regards to small and mid-cap stocks. Today, valuations remain stretched across most sectors.

Note: Top QG quadrant is defined as companies with a QR score > 0.5 and a GR score > 0.5. VR Score based on weighted average.

Fundamental Analysis

Chinese Companies Look Better than China’s Economy

By Andrew West, CFA, Analyst and Portfolio Manager, Lee Gao, Analyst and Portfolio Manager, and Apurva Schwartz, Portfolio Specialist | September 21, 2023

In 2023, Chinese markets have been roiled by continued trade tensions, slowing economic growth, and deleveraging in the property sector. Despite this difficult backdrop, there are reasons to be optimistic about the growth prospects of some Chinese companies. Portfolio Managers Andrew West, CFA, and Lee Gao discuss their current perspectives on China with Portfolio Specialist Apurva Schwartz, including how they weigh the opportunities and risks of investing in the market.

Slowdown in Economic Growth

Real estate, the biggest source of wealth for Chinese consumers, was in bubble territory and has been slowing for a while. This has negatively affected consumer confidence and household consumption.