Chinese equities are attractively priced and foreign investors can expect a profitable return in the long run, the head of the world's second-largest indixes compiler has said.
Overseas investors are very enthusiastic about the Chinese stock market, China Securities Journal today reported FTSE Russell Chief Executive Mark Makepeace as saying in a recent interview. For long-term investors such as pension funds, the Chinese market is a worthwhile venue right now, Makepeace said.
Valuations of publicly traded companies in China are relatively low. The current average price-to-earnings ratio for businesses listed on the Shanghai Stock Exchange is 12.28, while that for firms on the Shenzhen Stock Exchange is 19.81. In comparison, the average P/E ratio for the Dow Jones Industrial Average is 28.7, public data show.
Most Chinese investors are individual dealers who value quick returns. But as the market opens, more foreign investors are entering. Domestic investors must adapt to the foreign investment model and will likely make targeted adjustments that further rationalize the market, Makepeace said.
With the addition of mainland Chinese equities to FTSE Russell's global index in June, USD10 billion is projected to flow into China's stock market, and a further USD50 billion may enter over the coming three or four years.
The London-based indices provider included China's bond market into the watchlist of its Global Bonds Index last September. It will further consult international clients this year and announce in September whether it will formally include the Chinese bond market in its World Government Bond Index. FTSE Russell has started talks with Chinese regulators and they are going smoothly, Makepeace added.