China stocks: Too cheap to ignore?

Barry Cajunson (0:02)

You're listening to the MoneywebNOW podcast series with Simon Brown. Live streamed every weekday at 6.30am.

Simon Brown (0:13)

It's Thursday, 15 October. UK GDP data due 8am. Expected 1.7% year on year. I'm Simon Brown, coming at you live and loud from the Moneyweb studios in Houghton, Johannesburg. On the show today, Jimmy Miyaha.

I want to chat on the Chinese CSI 300 That's kind of like the S&P 500 index. Just hit 52 week lows. As the US is almost at highs, what's wrong with China? Is there opportunity here or do we leave it alone? We're going to be chatting with IOCO. Mutual revenue growth, perhaps up 42 percent, and then senior living, lack of preparedness for South Africa's aging population.

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Barry Cajunson (1:59)

MoneywebNOW on the money, also available on podcast.

Simon Brown (2:04)

Chadi Ngar with Jimmy Muiaha. Jimmy, I always appreciate the early morning. It was actually a tweet that came across my Twitter yesterday, looking at the Chinese, the CSR 300, as I said, kind of like the S&P 500, although a little smaller, of course, less stocks. They're trading down at 52 week lows. This is the US was sort of just at all-time highs in the last day, earlier in the week. What's wrong with China? I mean, is there a screaming opportunity here? Or should we sort of take the watch and see a view? What's your take on China equities?

Jimmy Muiaha (2:35)

Morning, Sy.

I think if you're looking at these two particular indexes and you're looking to compare them, you have to understand how they fundamentally differ.

The CSI 300 focuses mainly on the domestic market in China and mainland China. It doesn't take into account other markets like Hong Kong. That is represented by the Hang Seng, of course. And the domestic situation in China looks very different from the domestic situation in the US. On the other side, the S&P takes into account a lot more companies, first of all, and secondly, as a lot more capital that goes into it from an accessibility point of view. The other side of it is, of course, that China's domestic conversations and domestic monetary policy are heavily influenced by the People's Republic of China and the political interference there. Whereas on the S&P side, the impact that the Federal Reserve has on the S&P as an entire index is far less than what China's impact might have from a policy perspective on the CSI. That being said, if you then look at the overall performances of both, it's another indication of where capital is sitting at the moment. If you take out the impact of the... Or if you take into account the impact of AI stocks and technology stocks, you still have to look at the Hang Seng market, and that's been performing better than the CSI 300 So that tells you that investors are looking at tech stocks. They're still invested in tech stocks, but it also tells you that investors might have waiting restrictions in terms of portfolio waiting. So we're seeing that there's a lot more liquidity available on markets like the S&P 500 It's easier to access investments in that case, and for portfolio waiting as well, you want to be able to be liquid and to move in and out of investments with less friction. So perhaps those are some of the factors that could be contributing towards the CSI 300, not receiving as much investor flows. We know, you and I have spoken about this historically, quite a bit that the Eastern markets have always traded as a discount relative to Western markets. And that has played out, not just in China, it's played out in Japan, it's played out in all other or major Eastern markets as well in the past. And that's still going to continue for the foreseeable future until we see perhaps something fundamentally shift in how capital allocators are allocating their investible capital. If you look at where the US dollar sits, that's another factor that drives a lot of investment towards the United States at the moment, with those higher yields and higher returns being promised from the US dollar's perspective, especially at a time like this where global uncertainty continues to play out. Market participants want to eliminate as much of the risk as they can when they make their investment decisions. And I suppose for China, for the domestic market that itself has struggled to recover at the rate of other markets, and we need to think about the Chinese property sector that hasn't had an easy time of late.