Deutsche Bank Says China Private Stocks Riskier Than SOEs
John-Paul Smith, the Deutsche Bank AG strategist who’s been writing about the dangers of buying state-owned Chinese stocks since 2010, says private companies are now a bigger risk to investors as valuations surge.
Smith’s warnings about government intervention in the world’s second-largest economy foreshadowed a shift by money managers away from state-controlled banks, commodity producers and industrial companies, known as SOEs. Investors have instead been piling into privately-owned firms that sell services and consumer goods, propelling an MSCI Inc. gauge of Chinese technology stocks to valuations seven times more expensive than financial companies this month, the biggest gap since 2001.
“It’s more the high valuation in the rest of the market and not the low valuations of the SOEs that I find very risky,” Smith, an emerging-market strategist at Deutsche Bank, said in a phone interview from London on March 18. Investors have “crowded into a relatively small number of stocks.”
Non-state companies from Tencent Holdings Ltd. (700), Asia’s largest Internet firm, to milk-powder maker Biostime International Holdings Ltd. have rallied as investors bet they will be the biggest beneficiaries from the economy’s transition toward services and consumer spending. The gains have helped to stem a 7.8 percent decline in the MSCI China Index this year through yesterday.
http://www.bloomberg.com/news/2014-03-25/deutsche-bank-says-china-private-stocks-riskier-than-soes.html
