JP Morgan AM says China shares nearing bottom

JP Morgan Asset Management is confident that China will not only overtake growth rates in Asia, but will also outperform stock markets in the region.

The fund house believes MSCI China valuations are very close to their trough levels, both on a price-to-earnings or price-to-book measure. Year-to-date, the MSCI China index is down 3.6%. Over a one-year period, it is down 46.3%.

"We remain optimistic about the longer-term prospects for China's restructuring and economic growth," says Emerson Yip, who is part of the investment management team of the JF Hong Kong Fund and JF Greater China Fund.

"Although recent economic data confirmed that China was unable to escape the fallout from the financial turmoil and global recession, we are still looking at around 7% GDP growth for 2008, working on the assumption that the policy stimulus will work and generate the expected multiplier effects," he adds.

JP Morgan Asset Management is overweight only in two markets in Asia: China and Singapore, mainly because of the respective government stimulus packages of both countries.

In November, China announced its now much-talked about Rmb4 trillion ($586 billion) stimulus package, which is aimed at combating the most serious economic threat to the mainland since the Asian financial crisis in 1997.

With foreign reserves and a budget surplus amounting to around $2 trillion, investors are confident that China has the capacity to further stimulate the economy if needed.

"Chinese policymakers have been waging an all-out campaign to revive economic activity," the fruits of which will be reaped in the second half of 2009, says Yip.

JP Morgan Asset Management's Hong Kong portfolio continues to be biased towards the mainland Chinese markets.

Given the impact of deleveraging on local corporate and marginal households in Hong Kong, the fund house is adopting a dual strategy of increased emphasis on defensive and value names coupled with exposure in attractively valued shares in China.

For now, the fund house's Hong Kong and China portfolios are staying defensively positioned and are maintaining a tactical cash position for ready deployment. The fund house continues to retain a preference for companies with solid balance sheets, earnings visibility and strong cashflows.