Danish pension fund AP Pension has boosted its investment in China and now has more than DKK1bn (€134m), or 5% of its equities allocation, held in Chinese stocks, in the expectation the market will rebound from its current lows.
Many investors are steering clear of the Chinese market right now, with some having suffered losses over the last few years.
Since the spring of 2011, the Shanghai Composite Index has lost around 23% of its value.
Søren Dal Thomsen, chief executive of the commercial mutual pension provider, told IPE: “We were overweight Asian and Chinese stocks over the last 24 months, so now we have increased our position in Chinese equities.”
The pension fund, which had around DKK94bn in assets under management at the end of June 2014, now has 5% of its equities investments in Chinese companies.
“We’ve done that because it seems to us Chinese stocks have become very cheap compared with other markets and also to developed markets,” Dal Thomsen said.
AP Pension’s analysis of price/earnings ratios in markets around the world has shown that while equities in the US and other developed countries have risen strongly over the last few years, the ratios of Chinese shares have remained stable, making current prices there 42% cheaper than those of US equities on this basis.
“The market focus is that there might be a bubble in Chinese banks and in the building of residential property in China, and that is keeping a lot of investors away from the country,” Dal Thomsen said.
But he said it was possible to have investments in Chinese equities without having exposure to those sectors.
“We don’t have exposure to banks, for example,” he said.
“We have exposure to every sector except banks and residential property.”
Dal Thomsen said AP Pension was now hoping Chinese equities prices would rise from their current low levels.
However, more weakness in Chinese stock markets will be no deterrent to AP Pension’s strategy.
“If the market drops further, then we’ll buy some more stocks,” said Dal Thomsen.