Asset manager says China's 'extreme valuations' look ideal for stock picking

Upping your vulnerability to Chinese stocks is worthy the risk.

That's the presumption of Caroline Cai, CEO of U.S.-based Pzena Investment Management. "This is truly for the archetypal clip successful the past seven, 8 years wherever we deliberation you're getting paid to exposure yourself to China," Cai told "CNBC Squawk Box Asia" this week.

The concern steadfast has ramped up its vulnerability to Chinese equities successful the past 2 years. For Cai, the opportunities successful China are exciting.

"It's not due to the fact that we person a peculiarly affirmative presumption connected longer word Chinese macro, we benignant of deliberation things are beauteous challenging. What we're attracted to is the utmost valuation that we're seeing successful China, wherever radical are fundamentally saying there's nary terms astatine which you tin entice maine to put successful China," she said.

"Our presumption is, if the hazard is evident to everyone, astatine slightest you're getting paid to instrumentality immoderate exposure," she added.

Others person noted a much cautious approach. In aboriginal October, Adam Coons of Winthrop Capital Management told CNBC's "Street Signs Asia" that he's waiting "a small spot longer" earlier re-entering the Chinese market, owed to his concerns astir a imaginable short-term reversal successful the banal market.

China has announced the instauration of assorted measures aimed astatine boosting its fading economical maturation successful caller months. In September, the People's Bank of China announced a slate of enactment specified arsenic reducing the magnitude of currency banks are required to person connected hand.

Just a fewer days later, China's apical leaders said they were aiming to enactment a halt to the slump successful the spot sector, saying its diminution needed to beryllium stopped and a betterment needed to beryllium encouraged.

More recently, China connected Friday announced a five-year bundle totaling 10 trillion yuan ($1.4 trillion) to tackle section authorities indebtedness problems, portion signaling much economical enactment would travel adjacent year.

Chinese stocks person jumped since precocious September connected the promise, and announcements, of stimulus, with the CSI 300 scale present up 20% year-to-date.

Japan has besides been fashionable for planetary funds this year, contempt monetary and governmental uncertainty. Prime Minister Shigeru Ishiba was re-elected connected Monday contempt his ruling Liberal Democratic Party (LDP) suffering its worst predetermination nonaccomplishment successful much than a decennary past month.

For Cai, the "small-cap end" is of peculiar interest, compared to Pzena's "limited exposure" to much capitalized firms similar banks.

"We deliberation the valuations [for large-caps] are not truly justified by the underlying fundamentals," she said.

"You look astatine the Japanese banks, for example, they make little ROEs [return connected equity] versus the European banks — but they commercialized astatine higher multiples, versus the European banks," said Cai.

"A batch of what tin spell close has already been priced in," she said, factoring successful the presumption that Japanese involvement rates could emergence 50-100 ground points.

"On the different hand, if you look astatine what's happened to tiny headdress Japanese companies, successful theory, these are the 1 wherever the changes, the improvements successful firm governance and the betterment successful the home system whitethorn person the astir interaction connected longer-term outcomes."

—CNBC's Sophie Kiderlin and Evelyn Cheng contributed to this article.