Markets

State Street finds China's SMEs more attractive

By LI XIANG (China Daily)
Updated: 2010-05-04 10:04

BEIJING - The Chinese stock market has hit its lowest level in seven months after the government's clampdown on the country's overheating property market, but it hardly seems to have eased investor concerns about market's high valuations.

State Street finds China's SMEs more attractive

Richard Lacaille, chief investment officer of State Street Global Advisor. [File photo]

Richard Lacaille, chief investment officer of State Street Global Advisor, told a recent press briefing that he is cautious on China's equity market because the valuations are more expensive than others.

"China's stocks in terms of valuations are a little bit more expensive although we are confident about the fundamentals of Chinese companies," he said.

"We are cautious because of the valuation of Chinese stocks compared with some of the other markets in the region and outside."

The US investment advisor had around $1.9 trillion worth of assets under management by the end of the 2009. Its China A-share portfolio, which invests under the qualified foreign institutional investors' program, focuses on individual stocks rather than industries and picks up ones that are relatively inexpensive but have strong earnings growth, Lacaille said.

Given the relatively high valuations and volatility in the A-share market, Lacaille said that his company would advise its tactical investors to reduce exposure to the Chinese equity market in the short term.

The benchmark Shanghai Composite has plunged 7.7 percent this month, the biggest decline since January, as the government stepped up measures to curb property bubbles inflated by the massive lending spree last year.

Lacaille declined to comment directly on China's real estate sector, which has suffered significant losses due to a series of government tightening measures. He said the real estate market is complex and it is difficult challenge to evaluate it and predict bubbles.

The property sector index has declined 20 percent this year with the share price of Poly Real Estate Group Co, the second-largest developer by market value, falling 43.6 percent to a 13-month low.

Small-cap stocks have also borne the brunt of the recent decline with valuations soaring so high that analysts feel their profits no longer justify current prices.

But Lacaille said his company still finds small- and medium-sized companies, particularly consumer-oriented ones, more attractive than larger ones in the stock-picking strategy for its A-share investment portfolio.