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CLSA Increases China ‘Overweight’ on CSI 300 Decline

CLSA Asia-Pacific Markets is raising the “overweight” on China stocks in its relative-return portfolio by 2 percentage points as the nation’s yuan- denominated shares extended declines.

The brokerage is trimming its “double overweight” in India by 1 percentage point and reducing its “small overweight” in Taiwan by a similar move, Christopher Wood, the second-ranked strategist in Institutional Investor’s 2010 Asian poll, said in his July 4 Greed & Fear report.

Chinese stocks traded on the nation’s domestic exchanges are the worst performers in Asia this year, with the Shanghai Composite Index tumbling 28 percent amid concern the government’s policy tightening will dent the nation’s economic growth. The CSI 300 Index has declined 30 percent and fell 0.6 percent to 2,520.17 as of 1:38 p.m. local time.

“The biggest reason for the move is that the CSI 300 Index is now getting close to Greed & Fear’s targeted low of 2,300,” the strategist wrote. “It is too late to ‘underweight’ China for relative-return investors.”

The increase means investors should hold 24 percent of their portfolio in China, compared with the 19.8 percent weighting in the MSCI Asia-Pacific excluding Japan Index as of June 30, according to report.

Wood last month raised his “overweight” for H shares, or Chinese stocks traded in Hong Kong, by 1 percentage point after China relaxed the yuan’s peg to the dollar.

The strategist had trimmed his “overweight” in Taiwan’s stocks by the same amount, saying that yuan appreciation may further threaten profit margins for Taiwanese exporters that are already grappling with rising wages.

Wood also retained a “big underweight” in Australia and kept his “structural overweights” in India, Indonesia and the Philippines relative to the benchmark index, according to yesterday’s report.

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