Investors should exercise more caution when it comes to the valuations of Chinese stocks, as corporate earnings growth is set to slow because of Beijing’s pursuit of high-quality economic growth, according to China’s biggest money manager, reports the South China Morning Post. The base probability of sustainable high-quality growth at companies is falling and a valuation premium will not be justifiable, unless a company is riding an industry boom and holds an overwhelming edge over rivals, Zhang Kun, a Guangzhou-based fund manager at E Fund Management, said in an annual report.
Zhang’s flagship fund, which managed net assets worth RMB 41.7 billion ($5.8 billion) as of the end of last year, was larger than any other stock-focused fund operating on the Chinese mainland, Bloomberg data shows.
“We shouldn’t overestimate our capability of judging non-consensus sustained high growth,” he said in the report. “We will seriously consider companies’ valuations when they are placed in the illiquid primary market, and very prudently offer premiums.”