China, home to the world's best-performing stock market last year, is now the least favored in Asia outside of Japan for the region's funds, according to Citigroup Inc.
China overtook Taiwan and South Korea as the most "underweight" market for the first time, Citigroup analysts including Elaine Chu wrote in a report on Friday.
The CSI 300 Index is valued at 43 times reported earnings even after sliding 18 percent from its record close on Oct. 16. That makes the benchmark dearer than the Nikkei 225 Stock Average and the MSCI Asia Pacific excluding Japan Index, which are both at 16 times profit.
"Valuations still look expensive at this level," said Erwin Sanft, head of China and Hong Kong equities research at BNP Paribas Securities (Asia) Ltd. "This is really the last throes of the bull market. We're still going to see lower index levels from here."
The CSI 300, which tracks yuan-denominated stocks traded in Shanghai and Shenzhen, gained 162 percent last year, the most among the 90 global indexes tracked by Bloomberg. Stocks gained as investors bet on growth in the world's fastest-growing major economy fueling corporate earnings.
The Hang Seng China Enterprises Index, which measures the "H shares" of Chinese companies traded in Hong Kong, climbed 56 percent last year. The Hong Kong index has lost 35 percent from its Oct. 30 peak, leaving it valued at 20 times earnings.
Share-price gains helped Chinese companies surpass many of their global peers in market value last year. China is now home to six of the world's 25 largest companies by market value, data compiled by Bloomberg show. Only PetroChina Co (
Funds dedicated to investing in China saw net redemptions of US$1.1 billion for the week ended Jan. 23, the most in Asia, Citigroup analysts said, citing data from EPFR Global, a US-based mutual funds research company. Investors withdrew a record US$4.7 billion from Asian funds during the period, the report said.
Managers of Asian funds have also reduced their allocation to Hong Kong stocks and increased investments in Indonesia, Malaysia and the Philippines, according to the report.
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