Major foreign institutional investors, known as QFIIs, including
UBS and HSBC, said they are shifting more of their interest to
"undervalued" stocks in the Chinese market.
To be sure, high value stocks, including those in the financial
sector, still have their following among fund management
companies.
But UBS, the largest QFII investor in the market, said it would
focus on stocks with low price-to-earnings (P/E) ratios in the
coming year instead of high-priced equities.
"We will increase our holdings of lower-priced,
high-growth-potential stocks after selling parts our of high P/E
ratio stocks," said Yuan Shuqin, head of China equities at UBS.
UBS is approved to invest $800 million in the Chinese stock
market, the largest quota approved by the China Securities
Regulatory Commission.
In 2006, prices of many listed companies in the banking and food
and beverages sectors greatly increased while the gains in the
transportation sector have remained modest, according to Yuan.
P/E ratio of some stocks in the financial sector, like the
Industrial and Commercial Bank of China and Bank of China, are over
45, much higher than the same stock in the Hong Kong market, where
it has a ratio of about 30.
"The P/E ratio in the A-share market is relatively high compared
with market fundamentals," said Qu Hongbin, chief economist of
China at HSBC. "It is time to shift the focus from the high-priced
financial sector to the consumer sector."
(China Daily January 31, 2007)