Should You Buy AGF at This Price?

What happened to the AGF share price?

Trustee for AMP Capital China Growth Fund [ASX:AGF] was trading higher today as the Shanghai Composite lifted along with other Asian markets. By 1:20pm, the stock was trading at AU$0.815 a share, 0.62% stronger than yesterdays’ close.

Why did AGF shares do this?

Now, should you have a position in AGF? That is the same as asking the question, should you own the Chinese stock market as part of your portfolio?

I believe the answer is ‘YES’. Right now, the stock is trading at an even lower level than 2009. If you are a long term buyer of China, there is no better time to take a position.

This week the MSCI decided not to include the A-shares in its emerging market index. That means the current MSCI Emerging Market index is still underweight on the second largest economy in the world. Did they make the right call? They probably did. It’s hard to ignore some of the deficiencies in China’s current market model.

That is precisely why you need to think about investing in China related stocks or index-tracking stocks such as Trustee for AMP Capital China Growth Fund.

From my calculation, the current level of the Shanghai market is still too low for a 6–6.5% growth rate. It should be closer to the 4000 point mark at this level of growth.

As I look at the China-related stocks in the Aussie market such as GoConnect Ltd [ASX:GCN] and Dongfang Modern Agriculture [ASX:DFM], they are also potentially discounted as a result of China’s economic woes. They also present potential investment opportunities.

What now for AGF?

Buying AGF is effectively buying China. When you buy China, you need to be a long term investor. If you are, now is a perfect low point to get in. When will your investment pay off? It will pay off when China’s economy starts to meaningfully turn around.

Don’t get me wrong, there’s a lot to be done on the reform front in China. Despite the ongoing deep transformation in China’s economic model right now, its growth is still holding up strongly. Progress is made on boosting services, personal income, rationalising overcapacity and liberalising markets. However, attention must now turn to the corporate debt side.

I do believe the pace of reform should be faster and more aggressive, but I also realise it will take a strong and unified Chinese government to achieve that. While China runs its course of structural reform, the current low point is a good time to get in. China will continue extend its financial influence in the future. My advice is to buy it cheap and time it well.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

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