In the two weeks since the US Presidential elections, many global stock indexes have seen material gains with the Dow Jones and SP 500 posting new all-time highs. Notably absent from the list of sharply higher indexes is the the China Top 50 index. This index of China’s large capitalization stocks has moved higher over recent days, but is still 7% below the highs posted at the beginning of 2016.
We believe a combination of positive developments going into 2017 make this index represent good value at current levels. One of the biggest developments has been the revaluation of the Chinese Yuan to the US Dollar.
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The weaker currency will have positive knock-on effects on next years earnings and lead to more robust investment demand, as well as escalating CPI/PPI inflation.
As such, several analysts believe consensus growth numbers are too low and will be upgraded between now and next March. In addition, the general top-down forecast for earnings growth has been lifted from 5.7% .
This upgrade stems from non-financial sales and profit margin assumptions based on higher nominal GDP and stronger capacity utilization.
