Cheaper valuations on the Shanghai A-Share market mean more investment opportunities for foreign tech firms, but for a limited time only

Written by || July 02 2012

BlackRock recently announced the view that emerging stock markets such as China which have underperformed till early this year, are set to take off in the second half of 2012 thanks to the strong economic growth, slowing inflation, less volatility, and cheaper valuation.

Looking at the Chinese stock market data in detail: the SSE Composite Index level has slipped below 2200 this month from previous high of above 2800; volatility, on the other hand, reached 15% in June 2012 from around 20% in the second half of 2011. The lower SSE index level suggests a cheaper valuation of Chinese stock market (low P/E, P/D, etc.) which forecast higher future returns. Apparently, this prediction should be more pronounced if we account for inflation. Similarly, the reduced volatility indicates less realized risks in the market, a signal for attractive future returns.

From our perspective, this stock market outlook, in addition to the continued growth of financial IT spend in China, demonstrates an intriguing opportunity in the sense of timing for foreign financial technology companies to enter the Chinese market through M&A.