(Bloomberg) -- Concerns over China’s economy are the driving the nation’s US-listed stocks to trade near their biggest discount to the Nasdaq 100 Index.
The forward price-earnings ratio of the Nasdaq Golden Dragon Index, which tracks the biggest Chinese companies listed in New York, is close to a record low versus the technology-heavy gauge, according to data compiled by Bloomberg. The former has slid roughly 20% from a May high on disappointing earnings and worries over China’s weak consumption, while the latter gained 2.2% over the same period.
Foreign investors have been increasingly wary of buying Chinese equities as the country’s economic growth slowed to the worst pace in five quarters amid a housing slump. Sentiment worsened further in recent weeks as the nation’s biggest e-commerce companies, including Alibaba Group Holding Ltd. and Temu owner PDD Holdings Inc., reported worse-than-expected revenue growth for the second quarter.
For some traders, the valuation chasm signals that a tipping point may have arrived for Chinese stocks to play catch up.
“The gap is hard to widen further from here because Chinese names have already reflected most of the bad news,” said Kenny Wen, head of investment strategy at KGI Asia Ltd. “Plus, the US mega tech companies have increasing downside risk given the concerns about AI capex.”
Global mutual funds in aggregate have 5.2% of capital allocated in Chinese equities as of end-July, which is near the lowest in the past decade, according to a research note from Goldman Sachs Group Inc. on Saturday. Long-only fund managers reduced their positions in Chinese stocks in July, before the second-quarter earnings season began, Goldman said.
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