Talking Point  

'Many companies in China are trading below intrinsic value'

'Many companies in China are trading below intrinsic value'
(credit: REUTERS/Tingshu Wang)

A lot of companies are trading well below their intrinsic value in China which presents a 'unique opportunity' to investors, according to one fund manager.

Nitin Bajaj, portfolio manager of Fidelity Asian Values, said: "China is an integral part of the global economy and despite recent market upheavals, it is very hard for it to become irrelevant. 

"And hence, mean reversion - the assumption that an asset's price will tend to converge to the average price over time - is my base case for China and in such a scenario, I believe a lot of companies are trading well below intrinsic value in China."

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With the current decline in stock prices in Korea and Taiwan, Bajaj also believes some of the “well-managed” companies are now trading at reasonable valuations, so he is investigating a number of these.

Bajaj added: “I believe we will be in a period of sustained outperformance of value stocks given they are still trading at very significant discount to so-called growth stocks and in an environment where interest rate are not zero anymore, investors will focus more on cash flows and solid businesses.”

Investments managers remain optimistic about the long-term prospects for the Chinese economy as the country begins to reopen and move away from its zero-Covid policy.

As China battles a Covid wave, the country has dropped quarantine requirements and other travel restrictions that had been in place since early 2020.

Rebecca Jiang, co-manager of JPMorgan China Growth & Income, said: "After an extended period of lockdown, we see the rolling back of China’s zero-Covid policy as a catalyst for recovery in 2023 and expect to see an acceleration in activity as pent-up demand is released.”