On February 15th, Chairman of the China Securities Regulatory Commission (CSRC), Guo Shuqing, stated that the static price-earnings (P/E) ratio of blue-chip stocks such as CSI 300 is less than 13 times, and the dynamic P/E ratio is 11.2 times, highlighting their investment value. However, yesterday, the performance of blue-chip stocks remained sluggish. The CSI 300 Index oscillated downward, closing down by 0.53%. Out of the 300 stocks in the sector, only 78 individual stocks rose, accounting for less than 30%. Industry insiders believe that the overall valuation of blue-chip stocks is currently at its lowest point in the past 10 years and has long-term investment value.
There are 11 individual stocks trading below book value, making large-cap blue-chip stocks highly attractive. Most of the blue-chip stock prices are hovering around historical bottom regions. After statistical analysis, it was found that PetroChina, with the largest market capitalization, reached its historical low price on December 19, 2011, at 9.35 yuan, and closed yesterday at 10.17 yuan. The share prices of Industrial and Commercial Bank of China (ICBC) and others have also been at near three-year lows.
From the perspective of the price-to-book (P/B) ratio in the CSI 300 sector, there are 11 stocks with a P/B ratio of less than 1 time. Ansteel's P/B ratio is also less than 1 time, putting it in the category of stocks trading below book value. Additionally, there are 93 individual stocks with a P/B ratio of less than 2 times.
From the perspective of the dynamic P/E ratio, the ratios for Bank of Communications are 6.08 and 6.1 times respectively. There are also 38 stocks with a P/E ratio of less than 10 times.
The valuation of A+H shares is also a standard for measuring large-cap blue-chip stocks. Based on yesterday's closing prices, the H-shares of 20 stocks were higher than their A-shares. For example, Ping An Insurance's H-share closed at HK$65, while its A-share closed at RMB 39.68, with the H-share premium being 33% higher than the A-share. Additionally, the H-shares of Conch Cement are 10%-20% more expensive than its A-shares.
Currently, the valuations of large-cap blue-chip stocks are generally around 10 times, with their share prices also at bottom levels. Most institutions believe this is an opportunity for long-term strategic deployment into blue-chip stocks.
Dong Dengxin, Director of the Institute of Financial Securities Research at Wuhan University of Science and Technology, said yesterday that a large number of blue-chip stocks with P/E ratios below 10 times will support the rise of the A-share market.
Li Gongmin, Chief Strategy Analyst at China Merchants Fund, recently published the February investment strategy report, pointing out that the current market level is still relatively low, and there is hope for positive returns throughout the year. From a style perspective, the valuation levels of large-cap blue-chip stocks are at historical lows, having basically aligned with international standards. This year, large-cap blue-chip stocks will be superior to small-cap growth stocks. It is recommended to allocate to industries where prosperity and valuation levels have bottomed out, such as insurance, water conservancy, power equipment, and optical communication sectors benefiting from the recovery of central infrastructure investment.
Li Daxiao, Director of Yingda Securities Research Institute, also urged the purchase of blue-chip stocks on Weibo, saying: "The time to sow seeds in blue-chip stocks has arrived. Now is the best time to buy, even though the market has risen somewhat. If you want to seize the initiative and enter the market earlier than pension funds, it's not too late now."
Wang Ren, Chief Analyst at Ping An Securities, also believes that the A-share market situation in the first half of this year will be a 'valuation repair' driven by blue-chip stocks. Yang Derong, Chief Strategy Analyst at Southern Fund, declared that blue-chip stock opportunities will continue to appear throughout the year, and the main focus should be on mining opportunities within blue-chip stocks.
However, institutional attitudes towards the blue-chip sector vary. Judging from the already disclosed fourth-quarter fund reports, funds mainly increased holdings in undervalued financial and real estate stocks in the fourth quarter of last year, while reducing holdings in strong cyclical industries such as cement, coal, and nonferrous metals. Due to the premise of fund increases, entering 2012, the market experienced a rebound, with banks, real estate, and nonferrous metals experiencing oversold rebounds. However, for similarly large-cap blue-chip sectors like steel and chemicals, funds still choose underweight positions.
Despite both regulators and institutions advocating for blue-chip stocks, why do their share prices remain stuck in bottom regions?
"A-shares currently still favor speculative stories. Blue-chip stocks lack high growth potential, and their stories aren't compelling enough to attract ordinary retail investors to follow," said an investment analyst in Hangzhou. Although the P/E ratios of blue-chip stocks are not high, this merely indicates limited downside risk. However, future earnings growth may slow down, which suppresses the upward space for share prices. Furthermore, from an investment behavior perspective, blue-chip stocks are mostly held jointly by public mutual funds and other institutions. No fund is willing to raise the stock price to lift others' boats, and the large-scale clustering of funds is also an important factor causing stagnation in blue-chip stock growth.
From a dynamic P/E ratio perspective, the average annualized return of large-cap blue-chip stocks in the Shanghai-Shenzhen markets currently exceeds 8%. However, A-share companies' dividend distribution intentions are weak, prompting public mutual funds to prefer small-cap stocks with higher growth potential. If insurance or social security directly enters the market, blue-chip stocks with stable dividend expectations could become one of their investment targets. In the absence of substantial long-term investment 'liquidity,' it is difficult for blue-chip stocks to experience dramatic market movements. (Source: Qianjiang Evening News)