China Stock Skepticism Gets Louder as World-Beating Run Extends

(Bloomberg) -- The world-beating rally in Chinese stocks is failing to convince many global fund managers and strategists.

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Invesco Ltd., JPMorgan Asset Management, HSBC Global Private Banking and Wealth, and Nomura Holdings Inc. are among those viewing the recent rebound with skepticism and waiting for Beijing to back up its stimulus pledges with real money. Some are also concerned many stocks are already reaching overvalued levels.

Chinese shares have skyrocketed since late-September as a barrage of economic, financial and market-support measures reinvigorated investor confidence. The Hang Seng China Enterprises Index, which comprises Chinese stocks listed in Hong Kong, has jumped more than 30% over the past month, making it the best performer among more than 90 global equity gauges tracked by Bloomberg.

“In the short term, sentiment could overshoot but people will go back to fundamentals,” said Raymond Ma, Invesco’s chief investment officer for Hong Kong and Mainland China. “Because of this rally, some stocks have become really overvalued” and they lack a clear value proposition based on their likely earnings performance, he said.

Stimulus announced by Beijing has included interest-rate cuts, freeing-up of cash at banks, billions of dollars of liquidity support for stocks, and a vow to end the long-term slide in property prices. While there’s plenty of optimism that could underpin a sustainable equity rally, there have been a number of false dawns before, most recently a rally in February that completely unwound.

The surge in the past two weeks has seen Chinese equities reassert their influence over broader emerging-market gauges, and dented the performance of fund managers who had been running underweight positions in the biggest developing-nation economy. The durability of the rebound will not only matter for the year-end performance of index-tracking funds, but also have direct implications for nations that have trading and investment links with China.

Ma at Invesco, who was one of relatively few China bulls coming into this year, said he’s in no rush to add to his investments now.

“There are a group of stocks whose share prices are up by 30% to 40% and almost at historical highs,” he said. “Whether in the next 12 months the fundamentals will be as good as before their peak, that’s more uncertain to me. That would be the category we would like to trim.”