Nøddekær claims Chinese equities not too expensive

Nøddekær claims Chinese equities not too expensive

Emerging markets manager Jorry Nøddekær has insisted many Chinese equities are not too expensive in spite of the market soaring in the past year.

The MSCI China index has risen by more than 60 per cent, while the Shanghai SE Composite index, which tracks mainland Chinese shares not included in the MSCI index, has nearly doubled in value in the same time frame.

The pace and extent of the rally has led some commentators to suggest the market was approaching bubble territory and warned of a sell-off.

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But Mr Nøddekær (pictured), who manages the $1.5bn (£1bn) Nordea Emerging Stars fund, said there was still value to be found in Chinese shares, adding he was sticking with his overweight position in the country.

The manager said that while the speed of the re-rating of the market meant there was “definitely an element of concern”, Chinese stocks were “not in ridiculous valuation territory”.

He pointed out the MSCI China index currently has a forward price-to-earnings (p/e) ratio of 12.5x – up from 9.5x before the rally started, but still lower than the valuations of most major developed markets.

Some commentators have argued the valuation of the index has been held artificially low by the cheap p/e ratios of China’s state-owned banks, which make up a substantial chunk of MSCI China. As such, they say the index doesn’t reflect the true value of other sectors.

Mr Nøddekær acknowledged there were some “high-quality companies [that] are definitely expensive and it’s getting harder to find significant upside” but that he was still optimistic about many firms in sectors such as technology, telecommunications and consumer discretionary.

He said even though a company such as Tencent, a social media, e-commerce and online entertainment behemoth, was “definitely expensive” on a p/e of more than 50x, he said its future growth profile still justified such a valuation and he was still “comfortable” holding the stock.

However, the manager said there was a big difference when it came to the domestic A-share market, the Shanghai index.

The Nordea Emerging Stars fund currently does not hold any A-shares and Mr Nøddekær said there were now many firms on the domestic bourse that were looking “very, very expensive” – especially technology companies.

But he said those “silly” valuations were not reflected in the MSCI China index, where he believes there is still some upside.