T. Rowe Price T. Rowe Price Trusty Logo

Emerging Markets

China's A-shares Look Increasingly Attractive

Current headwinds providing opportunity for long-term investors

Eric C. Moffett, Portfolio Manager, Asia Opportunities Equity Strategy

Executive Summary

  • China’s A‑share market offers potentially attractive value as trade war concerns and slowing economic growth have weighed heavily on sentiment.
  • It’s not just valuations that are attractive: Fundamentals remain robust with demographics and household income providing a potentially better backdrop.
  • The most interesting areas are within cyclical and trade‑related sectors, where we are currently witnessing trough valuations.

China’s A‑shares are at crisis‑level valuations for an economy that is still growing faster than most places around the world. Indiscriminate stock selling by local investors on the back of trade tensions with the U.S. have left China’s A‑share market trading at less than 10‑times forward earnings compared to 16‑times just a year ago.1

Despite trade tensions and a slowing economy, there is a positive case to be made for China’s A‑share market aside from valuations. Household income continues to grow 10% year‑on‑year and the government continues to hike minimum wages. Furthermore, due to demographics, there is a shortage of skilled blue‑collar workers. Importantly, the income growth of the average household matters much more to corporate earnings than the GDP of the overall economy.

Opening Quote After recent falls, there are some stocks trading at crisis levels. Closing Quote
— Eric Moffett T. Rowe Price Asia Opportunities Equity Strategy

Low Valuations Bring Opportunities in Cyclical Sectors

The most interesting opportunities are in cyclical and trade‑related sectors that have fallen sharply, and for which earnings expectations and valuations are very low:

  • China autos—Automobile sales were down sharply in the second half of 2018, with negativity on these stocks as bad as it has ever been and valuations at their lowest point. However, it is important to bear in mind that auto penetration in China is still low compared with other countries in the rest of the Asia‑Pacific region, indicating that the structural story remains intact. The industry has temporarily shifted from structural to cyclical growth, and potential policy easing may provide additional support to the sector.
  • China property—Inventory levels are low and affordability outside the top few cities is very good, offering opportunities for high‑quality property companies to gain market share. Property is an important engine of growth for the economy and has been quiet for a few years now. With government policymakers already easing policy in the sector, there are opportunities to be had.
  • Trade‑related companies—While the outlook for trade with the United States is muddy, the U.S. accounts for less than 20% of China’s exports. We are mindful that net exports are not a big driver of economic growth in China, but export-related industries remain important employers. Given the depressed valuations that A‑shares are trading at, we are of the view that much of the bad news has largely been priced in.


Current proposed trade tariffs would represent less than 1% of GDP growth.

Encouragingly, an aggregation of all the proposed trade tariffs still represents less than 1% of GDP, and China’s economy is still growing at around 6% annually. It’s also important to bear in mind that the Chinese renminbi has depreciated by around 5% over the last year, which helps to offset the negative effects of trade tariffs. Importantly, we believe high‑quality companies that can compound earnings in different cycles and through macroeconomic ups and downs can continue to perform well.


A key factor to watch is China’s unemployment rate, which remains low at under 4% as of the end of 2018. In early 2019, there was a sharp uptick in Chinese companies telling their workers not to come back to the factories after Chinese New Year which alarmed government officials. Policymakers will be laser‑focused on whether unemployment may become a problem in the weeks after Chinese New Year.

1 Source: FactSet. [Return to Text]

Important Information
This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request. It is not intended for distribution to retail investors in any jurisdiction.

USA—Issued in the USA by T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, MD, 21202, which is regulated by the U.S. Securities and Exchange Commission. For Institutional Investors only.

© 2019 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the Bighorn Sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc.



Tap to dismiss


Latest Date Range
Audience for the document: Share Class: Language of the document:
Download Cancel


Share Class: Language of the document:
Download Cancel
Sign in to manage subscriptions for products, insights and email updates.
Continue with sign in?
To complete sign in and be redirected to your registered country, please select continue. Select cancel to remain on the current site.
Continue Cancel
Once registered, you'll be able to start subscribing.

Change Details

If you need to change your email address please contact us.
You are ready to start subscribing.
Get started by going to our products or insights section to follow what you're interested in.

Products Insights

GIPS® Information

T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®). TRP has been independently verified for the twenty one- year period ended June 30, 2017 by KPMG LLP. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.

TRP is a U.S. investment management firm with various investment advisers registered with the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and other regulatory bodies in various countries and holds itself out as such to potential clients for GIPS purposes. TRP further defines itself under GIPS as a discretionary investment manager providing services primarily to institutional clients with regard to various mandates, which include U.S, international, and global strategies but excluding the services of the Private Asset Management group.

A complete list and description of all of the Firm's composites and/or a presentation that adheres to the GIPS® standards are available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request

Other Literature

You have successfully subscribed.

Notify me by email when
regular data and commentary is available
exceptional commentary is available
new articles become available

Thank you for your continued interest