(Bloomberg) -- A renowned Chinese macro hedge fund advised retail investors to buy stocks now, citing relatively low valuations and the government’s policy support as tailwinds for the market.
“Is now a good time for retail investors to take part in the stock market? My answer is yes,” Li Bei, founder of Shanghai Banxia Investment Management Center, wrote in a WeChat post late Wednesday.
Li’s comments come as Chinese equities are at a crucial crossroads. An epic rally spurred by a monetary policy blitz has lost momentum after underwhelming fiscal stimulus, pushing the CSI 300 Index into a correction and fueling a debate over where the market is headed. Amid the gyrations, retail investors have quickly retreated.
The implied returns of stocks are much higher than bank deposits and wealth management products, wrote Li, who manages the flagship Banxia Macro Fund. She cited government measures to urge companies to boost dividends, improve corporate governance and increase investor returns as supporting factors.
In the post, Li didn’t mention her fund’s strategy to navigate the latest market swings. The CSI 300 Index surged more than 30% in about three weeks through Oct. 8, before falling more than 10%. The benchmark trades at about 12.7 times forward earnings estimates, in line with a five-year average.
The Banxia Macro Fund gained 4.2% through the end of September this year, trailing the 17% advance in the onshore benchmark, according to the fund’s third-quarter report. Back in February, Banxia said in a letter to investors that it slashed stock positions in the previous month as a market rout deepened.
While making the recommendation to buy now, Li warned that it’s not easy for retail investors to make money. She suggested they stick to blue chip stocks, shares of state-owned enterprises, those with low price-to-book ratios and high dividend payouts, and exchange-traded funds.
--With assistance from Zhang Dingmin.
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