Should You Buy AGF at This Share Price?

What happened to the AGF share price?

The Trustee for AMP Capital China Growth Fund [ASX:AGF] share price was 1.86% up on the day by 3:40pm today. Over a one year period, the stock is down by 40%. Over a five year period, the stock is up by 40%. Asian markets continued to rally today after yesterday’s market-wide ‘celebration’. However, we see some profit-taking in today’s market sessions.

Why did AGF shares do this?

AGF was a hot stock when the China market was in rally mode in 2015. Then, it deflated in spectacular fashion. AGF rallied more than the Shanghai Composite during the rally, but it also dropped more than the Shanghai Composite when it popped. This no doubt caught some late-comers by surprise. Now the stock is cheap again.

When the China stock bubble went bust last year, it didn’t do so in isolation. There was a major pull back in all emerging market performances. Capital flight took place. For a time, the bears seemed to be right. Now, the market has calmed down a lot after settling back to a level lower than its long term fundamentals. However, the sentiment surrounding emerging markets and China has not fully recovered.

Should you buy China? That question can be answered in so many ways. From a quant perspective, China is a great place to buy because it offers diversification to Aussie investors. From a strategic point of view, China will generate an immense amount of value and wealth in the coming years; it is a great place to invest. From a valuation point of view, China’s market is currently undervalued (in my view) relative to its long term fundamentals.

However, from a sentiment point of view, it is hard for investors to put money back into China after the series of destabilising events in 2015 and early 2016.

What now for AGF?

My best advice to you is very general. I believe Chinese equities offer great upside opportunities, as well as the benefit of diversification to your portfolio. However, you need to be quite nimble when it comes to China and you need to be technical and disciplined. To some degree, Chinese equities offer short term investors amazing upside potentials, particularly in small-caps. However, it is also a volatile market. Policies can easily drive market directions, and you need to be able to understand those factors. It also offers short sellers good timing-based trades, due to the swings.

Perhaps what’s most important is knowing that Chinese stocks and China-related stocks are not something you should ignore.

Ken Wangdong
Market Analyst, Emerging Trends Trader

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