A-Share Valuations Have Priced In Caution, Analyst Says
Chinese equities have fallen far enough that the bad news may already be in the price. That is the argument made on October 24 by Chen Xing, chief macro analyst at Huafu Securities, who said the valuations of core A-share assets have now “fully digested” the market’s cautious expectations and that the case for holding equities is gradually strengthening.
Chen’s reasoning is straightforward. After the latest round of adjustment, he said, several broad-market indices and sector benchmarks have slipped back to historically low percentiles, and some growth sectors are trading near their lowest valuations in about a year. When prices already assume disappointment, even modest good news can move them.
What would that good news look like? Chen points to two conditions. The first is earnings: corporate profits need to show at least marginal stabilization at the margin, rather than continuing to deteriorate. The second is liquidity, where he expects a gentle repair in expectations rather than a dramatic loosening. If both arrive, he argues, equity assets have room to bounce back.
His advice to investors is essentially a plea for calm. Chen recommends avoiding short-term emotional noise and resisting the urge to sell in a panic. Instead, he suggests concentrating on quality companies where earnings and valuation are well matched, and taking a patient, rational approach to building positions.
For global readers, the A-share market is the mainland exchange complex in Shanghai and Shenzhen, distinct from Hong Kong’s more internationally open market. It is dominated by domestic retail investors, whose sentiment can swing sharply, which helps explain why analysts spend as much time discussing psychology as fundamentals.
Chen’s framing also reflects a familiar pattern in Chinese brokerage research. When indices slide toward historic lows, strategists often shift from forecasting direction to arguing about value, telling clients that the risk-reward has improved even if no immediate catalyst is visible. That is a softer claim than a bullish call, and it leaves plenty of room for the market to keep drifting.
The practical question is what counts as earnings stabilization. Chinese companies have spent much of this year reporting uneven profits, with some manufacturers squeezed by price competition and others benefiting from export demand. Until those trends converge, valuation alone may not be enough to draw buyers back in size.
For now, the message from one of the country’s mid-sized brokerages is that the downside looks limited and the upside depends on patience. Whether investors share that patience is a different matter, and one that will show up in trading volumes and fund flows long before it shows up in analyst notes.