World's big stock losers are winners in China: UBS

Hong Kong

A CLASSIC investing strategy favoured by the likes of Warren Buffett and Benjamin Graham is paying off for investors in mainland China, in contrast to many other parts of the world where it has misfired for much of the past decade.

Stocks trading on low price-to-book ratios in Shanghai and Shenzhen were the best performing bets in Chinese equities in October - a rally that still has legs, according to UBS Group AG quantitative strategists.

"Value has performed quite consistently," Shanle Wu, an Asia-Pacific quantitative analyst at UBS Investment Research, said. "Looking at the past decade in China, it's one of the best performing factors," she said.

Picking cheap shares has fallen out of favour as an investment strategy globally in recent years after they failed to keep pace with growth stocks such as the so-called FANGs - Facebook Inc, Amazon.com Inc, Netflix Inc, and Google parent Alphabet Inc. But in China, investors are better off with less flashy names, Ms Wu said.

Among UBS's picks: Metallurgical Corporation of China, which trades on a 9.49 forward price-to-earnings ratio; and Shanxi Taigang Stainless Steel Co, with a 4.81 multiple. Its model also tips China Railway Group, which builds train lines, tunnels and bridges, and carries a 9.07 multiple. By comparison, the CSI 300 Index trades on 11.17 times earnings.

UBS isn't alone in picking up on the trend.

"The single best place across the Asia spectrum for value was China" last month, said Robert Gillam, chief executive officer at McKinley Capital Management, a systematic fund manager in Anchorage, Alaska. "It also had triple the power we saw in our global universe," he added, citing the company's proprietary measures. BLOOMBERG