Investing.com — Chinese stocks are likely to rebound in the coming months as they are undervalued after a long period of weakness and Beijing is likely to announce further stimulus measures, Gavekal Research said in a note.
Gavekal said in a note dated Monday that he is “very bullish” on Chinese stocks and advocates for maintaining long positions in the market. He recommended investing in Chinese stocks before the next bull market begins.
Mr. Gavekal’s memo came just a day before China rolled out a series of stimulus measures, including cutting bank reserve requirements, lowering mortgage rates and possibly providing liquidity support to domestic stocks.The moves have helped propel the Chinese yuan and its index up more than 2% each from near eight-month lows, while the Hong Kong index surged more than 3%.
Gavekal said the Chinese market is undervalued relative to gold and that Chinese stocks offer higher dividend yields than government bond yields, a situation that has only happened twice before and led to a surge in the Chinese market both times.
Gavekal said further stimulus measures could be introduced if the stock market slump continues, and the government may offer tax cuts for local businesses.
Chinese stocks have been by far the worst performing in Asia over the past two years, with continued domestic deflation and a prolonged decline in the property market causing many investors to retreat from the domestic market.
But it has strengthened the view that shares in well-known Chinese companies, particularly the country’s largest internet companies, are trading at attractive discounts.
