While most banks are advising to remain cautious on Chinese markets, Lombard Odier has taken a relatively contrarian view that the downturn in investor sentiments for both the equities and bonds has been overdone.
Following the meltdown of Chinese equities in 2021 – including an estimated $1 trillion wipeout of the nation’s listed internet companies – most banks have advised investors to stay sidelined until more positive news emerges but Lombard Odier believes this caution to be overdone.
«This correction has gone too far,» said the bank’s Asia chief investment officer Jean-Louis Nakamura in a recent virtual briefing.
«The level of relative valuation of many of the stocks out of China, especially in the offshore market, has corrected too much.»
Outperformance in 2022
While Nakamura notes that the crackdown will continue, creating a relative discount compared to the same kinds of industries and names in the less regulated U.S. tech market, he stresses that the deep correction has made valuations enticing and called entry into Chinese equities at current levels a «key recommendation» for clients.
«As long as the macro policy eases more and more, we will see those stocks outperforming the rest of the world,» he said.
Bonds: Also Undervalued
Even in fixed income, Nakamura believes that investors have excessively undervalued the market which has also created attractive entry levels.
«Today, China’s property market is valued like it’s worthless. We don’t believe this to be the case,» he said, calling Chinese property high yield bonds as the best-valued investments for reserve and storage.
Nakamaura adds that although it will take some time to monetize such investments, he predicts that a catalyst will occur from the relaxation of some rules by Chinese authorities to stabilize the market and restore homebuyer and investor confidence.
