With some sections of the Chinese share market exhibiting 'manic' conditions, investors should pick their China A-Shares judiciously, says Lazard Asset Management's head of emerging markets.
New York-based Lazard Asset Management's James Donald, who is responsible for Lazard's US$60 billion emerging markets business, told InvestorDaily yesterday that the last year has seen China A-Shares (ie. shares that trade on the Shanghai and Shenzhen stock markets) ramp up in anticipation of the Shanghai-Hong Kong Stock Connect.
"We’ve had some mainland investment – not a great deal – going to Hong Kong, and that is causing enormous excitement," he said.
"While the whole market is not in a 'mania condition', some areas of the A-Share and H-Share markets are at 'very high' valuations today.
"You’ve even seen some companies in China throughout this period raise large amounts of capital with little to no assets.
"I would call that speculative activity and it’s a concern. We invest in emerging markets based on company fundamentals. In my opinion China in general is less attractive on a valuation basis than it has been," Mr Donald said.
As a result, Lazard AM is underweight China, he said.
Mr Donald's emerging markets strategy currently has 15 per cent of its assets in China, which compares with around 24 per cent in the MSCI Emerging Markets index.
While Lazard AM screens for "interesting" stocks, there are "remarkably few today", he said.
"Some of the A-Shares are very expensive in my view. And they’re going to do the Shenzhen Connect system [soon]. The technology stocks on the Shenzhen markets are well over 100 times earnings," Mr Donald said.