How are energy investors positioned?
Investing.com -- Bernstein told investors in a note Friday that it believes the sharp rebound in Chinese equities since April “looks sustainable,” citing valuations, earnings momentum, and policy support, though it flagged signs of overheating in parts of the market.
“Valuation upcycle, falling equity risk premium, return of strong earnings recovery cycle, supportive policy measures and strong domestic liquidity still remain supportive for the markets,” Bernstein wrote.
The brokerage noted that most Chinese indices are up more than 20% from April lows, driving debate over the rally’s durability.
Bernstein highlighted that multiple expansion and a falling equity risk premium still provide room for further upside.
“MSCI China has finally crossed 10yr avg PE after 3yrs and is trading at 14.3x fwd. PE which is still quite below 2021 peak (18.3x),” it said.
Meanwhile, ERP has fallen to 4.3%, a three-year low but still above historical troughs.
Earnings trends are also proving supportive. “Since July, there has been a very strong earnings recovery cycle and all sectors are joining in, with Healthcare, Materials, Communications and Financials already seeing net upgrades,” Bernstein wrote.
Domestic flows are said to remain a key driver. Year-to-date, investors have added about HK$944 billion through the southbound channel.
“It’s all about domestic flow, however, unless it turns out to be 2015 like rally, domestic savings to equity shift could be a limiting force,” the analysts said.
Still, Bernstein cautioned that growth and momentum stocks are showing signs of peaking, urging investors not to chase recent winners.
“A more sustainable China exposure is to focus on laggards,” it concluded.