BEIJING Aug. 12 -- Investers should consider buying China¡¯s local-currency A shares because government measures to boost stock markets and the revaluation of the yuan will help gains in equities, according to Nomura Securities Co.

    Sean Darby, Hong Kong-based head of Asian strategy at Japan¡¯s largest brokerage, recommends closed-end mutual funds that trade at a 40 percent discount to net asset value as a way into China¡¯s A-share market.

    China¡¯s stock indices are among the world¡¯s 10 worst performers this year out of 80 major equity indices in the world. The slump in China¡¯s stock markets has been partly driven by concern a program to trim about US$250 billion in government holdings, including so-called ¡°legal person¡± shares, will drag prices lower.

    ¡°We believe the worst of the news is already priced in. We do not see the overhang of legal person shares as a negative. By determining a clearing mechanism for the shares, there is now at least an acknowledgement that the problem needs to be resolved,¡± Darby said.

    Nontradable shares are held by cities, provinces and the Central Government, and include legal person shares held mostly by State-owned companies. Through these holdings, the government controls most of the 1,378 companies that have gone public by selling shares to private investors.

    The Shanghai Composite Index, which covers yuan-denominated A shares and foreign-currency B shares, has dropped 11 percent this year. The Shenzhen Composite Index, which tracks the smaller market, has fallen 15 percent.

    China¡¯s domestic stocks remain expensive relative to other Asian markets. The Shanghai Index is at 27 times forecast earnings, against the 13.8 times of the Morgan Stanley Capital International Asia-Pacific excluding Japan Index. The 37 member Hang Seng China Enterprises Index is at 10.7 times.

    (Source: Shenzhen Daily/Agencies)