PIMCO: For ‘Cheap’ Emerging-Market Equities, Look to China

Firm is ‘fishing in the more cyclically distressed areas of the market,' including China

A man in China watches a stock board.  (Photo: AP) A man in China watches a stock board. (Photo: AP)

If you’re looking for a bright spot in a sea of investing malaise, emerging-market equities are undervalued and offer opportunity, according to Pacific Investment Management Co.

Maria Gordon, an emerging-market equity-fund manager with the firm, called the stocks “cheap” during an interview with Bloomberg Television on Monday, saying PIMCO is buying in China after the nation’s shares tumbled this year.

“We are definitely fishing in the more cyclically distressed areas of the market where valuations are very, very cheap,” London-based Gordon said in the interview. “We’re selectively accumulating positions” in China, Gordon said, adding that shares of Hong Kong-based insurer AIA Group Ltd. are poised for “a lot of capital appreciation.”

As the news service notes, the MSCI Emerging Markets Index has tumbled as much as 31% from this year’s high, sending its price-to-earnings ratio to 9.4 on Oct. 5, the lowest level since December 2008.

The Hang Seng China Enterprises Index, a gauge of Chinese companies listed in Hong Kong, has slid 38% from a 30-month peak in November “as tight monetary policy in the biggest emerging economy and Europe’s debt crisis spurred investors to sell riskier securities.”

“Markets are cheap,” Gordon said. Still, “it’s very difficult to call the bottom” given concerns that the global economy is slowing, she said.

“Emerging-market equity funds have posted 10 straight weeks of outflows, with investors withdrawing $3.3 billion in the seven days ended Oct. 5,” according to Bloomberg, citing data compiled by Cambridge, Mass.-based research firm EPFR Global. “China funds had $167 million of outflows during the week.”

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