China’s economic growth in recent years has not translated into good returns for passive equity investors. But a series of major reforms to the securities and investment industries are paving the way for more active asset management in the country.
For the best part of a decade, China has been no place to be a long-only equity index follower. The Shanghai Composite Index has lost about 40% of its value since its August 2009 peak – wiping out almost $650 billion of market capitalisation and making it the worst performing major market in the world, bar Greece.
That has left Chinese stocks looking pitifully undervalued by global standards. They are now trading on single-digit P/E ratios and price-book value (PBV) ratios of a little over one. At these levels, say some investors, China is looking irrationally cheap.
