4) Tips for Building a China Portfolio
If the rally in MSCI China sustains for the year, investors might want to look into distinguishing between sectors that will help buoy the trend and those that won't.
Credit Suisse writes in a recent research note that the four most undervalued sectors are banking, materials, real estate and energy. On the other end of the spectrum, the firm says that consumer staples are trading at a 124% premium to the region.
"We continue to suggest investors switch from staples to these more undervalued sectors," it writes, adding that earnings downgrades of consumer staples have been those for MSCI China overall. "We also note that real estate and materials led the rally from 2008 lows when TED spreads peaked and China eased." The TED spread is the difference between the interest rate that banks charge each other and the interest rate on U.S. Treasury bills.Here's a list of Credit Suisse's top picks from its Asian Model Portfolio: Industrial and Commercial Bank of China, China Construction Bank, China National Offshore Oil Corporation, Sinopec, China Overseas Land & Investment, Anhui Conch and China Mobile (CHL).
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