Chinese stocks are volatile but not expensive, and much of the current negative sentiment on the country is misguided, said the chairman and co-chief investment officer of Hong Kong asset manager Value Partners.
Cheah Cheng-hye also advised investors to make money as quickly as possible from global market volatility to cushion them for inevitable big losses in subsequent crises.
At Bloomberg's Most Influential 2016 conference in Hong Kong yesterday, Cheah argued that many narratives about China were telling the wrong story. The key, he suggested, was to look at the country’s social stability rather than its growth rate.
The focus of much investment community comment is on China’s growth rate and state-owned enterprise reform, he noted. But these are not the most important factors, he argued; rather, the discussion should be about the country’s social stability.
“With the breakdown of social stability, China is nothing,” he said.
Accept your losses
Cheah also advised investors to take opportunities where they could by embracing today's volatile environment, as the global macropolitical situation was out of their control.
Behind the current global economic problems is the fact that western governments are relying on financial engineering and money printing, and political leaders are doing or saying whatever they can to get votes, rather than making an effort to tackle the real need for structural reforms, said Cheah.
“The way to handle this volatile and difficult environment, with [western] civilisation in crisis, is to be able to afford losing a lot of money,” he noted “From time to time during crises, you will lose half what you have. It is okay.”
Hence investors need to make a killing from high volatility before the next crisis hits, he added.
A waiting game
Other China bulls at the forum also stressed the importance of being patient on the country.
For one thing, it is among the markets that are most resistant to US rate hikes, said Mark Mobius, executive chairman of the emerging market group at Franklin Templeton Investments, speaking on another panel.
He added that investors would need to wait on the impact of Beijing’s policy liberalisation. For instance, he said he did not expect the upcoming Shenzhen Connect to take off quickly, but that volumes would grow gradually, as the Shanghai trading link was now moving in the right direction.
“The most important thing about China is that the government wants to do things step by step, not making any mistakes,” he noted. “We have to be patient.”