Bull Not In The China Shop

Mark Mobius is tempering his bullishness toward China’s equity market.

The legendary emerging-market investor says Chinese shares traded offshore have become too pricey after an almost 20 percent jump in technology stocks helped propel the MSCI China Index to its most expensive level in more than six years.

“We won’t be adding aggressively at these levels,” Mobius, executive chairman of Templeton Emerging Markets Group, said in an interview on TV Thursday, referring to tech shares. “The problem you face now with China is that the index is so heavily weighted to tech stocks which are naturally very expensive so it pushes up the whole index.”

Chinese tech giants Tencent Holdings Ltd., Alibaba Group Holding Ltd. and NetEase Inc. have driven the MSCI China gauge up 14 percent this year, making it the best performer globally. Company earnings, meanwhile, haven’t kept up the pace, which has contributed to the index’s swelling valuation. The MSCI China traded at 14.9 times members’ reported earnings on March 20, the highest level since December 2010.

Tencent, the Internet company best known for its blockbuster WeChat messaging service, has gained 18 percent since Mobius made a bullish call on onshore Chinese shares back in November, pushing its market capitalization above that of Wells Fargo Inc. His argument then was that Beijing may be forced to speed up the pace of opening China’s markets by the threat of a trade war with President Donald Trump.

Five months on, Mobius is confident Trump will put the bluster aside when he meets Chinese President Xi Jinping for the first time Thursday in Florida. China’s intent will be to build a smooth relationship with the U.S., he said.

“The Chinese are in pretty good position because they could easily raise their exchange rate, make it stronger and still export a heck of a lot,” Mobius said Thursday.

While offshore-traded Chinese shares have outpaced their mainland brethren this year, Mobius sees greater gains onshore in the long term. MSCI Inc.’s plan to include mainland stocks in its global benchmarks will lure more foreign investors, while government stimulus should invigorate demand from locals, he said.

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions Ltd

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