China, Hong Kong bubbles burst: Aberdeen

The bubbles in the Chinese and Hong Kong stock markets have now burst, but finding good investment opportunities amidst ongoing volatility remains a challenge, according to global fund manager Aberdeen Asset Management.

Aberdeen Asset Management Asia managing director Hugh Young said recent falls in asset prices have “transformed” the Chinese and Hong Kong stock markets into attractive investment opportunities, with share prices back at levels not seen for 12 months.

But Aberdeen expects both markets to face continuing volatility in the months ahead, driven by “deteriorating economic growth, worsening corporate earnings and the build up of inflationary pressures”.

“One of the many fallacies of the ‘rise of China’ is that its companies are immunised from normal economic forces,” Young said.

Young said that until recently, stock prices in these markets were a deterrent for the manager, which “stood aside from the excesses of last year”.

Today, the “restraining factor is still earnings, which look elevated given a still uncertain outlook, and one reason why volatility is likely to continue”.

According to Young, while China would “undoubtedly build on its position as a global powerhouse”, the challenge for investors is finding a way to gain exposure to this growth story.

Aberdeen said it prefers to invest in Chinese companies listed in Hong Kong, which have “better standards of accounting and transparency than on the mainland”. The manager also invests directly in Hong Kong listed companies.