HONG KONG: J.P. Morgan Asset Management positive on greater China supported by favourable valuations and policy environment
Jun 21, 2012
Hong Kong, 21 June 2012: J.P. Morgan Asset Management (JPMAM) believes that while economic growth and corporate earnings expectations are being tempered globally, attractive investment opportunities abound in Greater China equities. Valuations remain supportive and China's policy has inflected given falling property prices and inflation rates, with tightening giving way to "fine-tuning."
Speaking at a press conference today on the market outlook for the Greater China region in 2H2012, Howard Wang, Head of the Greater China Team at JPMAM noted, "Valuations in China remain attractive despite the usual caveats – the trailing Price/Book ratio in mid-June 2012 stands at 1.69x, close to the previous trough in October 2008 and much lower than the historical average of 2.37x."
With inflation easing to 3% in May (down from 3.4% in April and 3.6% in March) and the market seeing further drops in the months ahead as economic growth slows, the People's Bank of China is continuing to ease liquidity. In addition to continuing to cut the reserve requirement ratio (RRR), for the first time since late 2008, the PBoC announced an interest rate cut of 0.25% in June. In addition, China has significantly accelerated the speed of approvals for infrastructure projects and is considering various other fiscal stimulus measures in order to keep full year economic growth at its 7.5% target.
"While we do not believe that the Chinese government will stimulate in anything approaching the 2009 scale, we do expect more fiscal and monetary easing measures. That said, even as headline GDP growth in China slows, as long as we do not impair the banking system, we believe there are plenty of long-term bottoms-up opportunities in sectors such as consumption, alternative energy and Internet services. Secular trends will continue despite the cyclical slow-down and it is important to keep in mind that China has struggled more with inflation than growth in recent times."
In Hong Kong and Macau, while the principal drivers of the economies have slowed, we continue to find attractive opportunities. Hong Kong properties continue to find buyers, physical price performance has been better-than-feared and property equities are cheap. Macau gaming companies generate substantial cash flow.
In Taiwan, while macro news and government actions remain suboptimal, bottoms-up opportunities exist particularly in certain technology stocks.
Some upstream technology names have begun to see strong earnings estimate upgrades driven by capacity shortages in advanced production nodes. The trends of communication gadgets and ‘smart' devices will continue to drive foundry demand. We remain constructive on the opportunity set within both technology as well as certain domestic growth names.
Within JPMAM's Greater China portfolio, the principal overweights are Chinese consumption including Internet services, Chinese property and Hong Kong property. On the other hand, Chinese banks, Chinese and Taiwanese commodities look less favourable as China exits its hyper investment era.
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Issued by JPMorgan Funds (Asia) Limited
Notes to Editors
J.P. Morgan Asset Management ("JPMAM") is the brand name of J.P. Morgan Chase & Co's asset management companies, including JPMorgan Funds (Asia) Limited.
J.P. Morgan Asset Management is a global asset management leader providing world-class investment solutions to clients. With over US$1.3 trillion in assets under management (the Asset Management client funds of J.P. Morgan Chase & Co. as at 31 March 2012) and offices in 41 locations around the world, J.P. Morgan Asset Management offers global coverage with a strong local market presence, and leadership positions in most asset classes.
Commitment to Hong Kong
JPMAM's investment management business in Asia has remained headquartered in Hong Kong for more than three decades and today has over 500 employees based in this location. JPMAM and its investment arm - JF Asset Management - are one of the largest local investment managers in Hong Kong with over US$77 billion (31 March 2012) of funds managed across the Asia Pacific region.
As part of a major global investment group, we are committed to providing specialist teams with the resources needed to deliver successful products and performance to our clients. The Hong Kong-based Pacific Regional Group, together with the local presence of the Global Portfolios Group, Global Multi Asset Group and Global Fixed Income Groups, forms the core of JPMAM's investment management operations. In addition to the knowledge and experience of our individual investment professionals, the stability of the team has enabled JPMAM to develop strong relationships with local clients.