China Oil and Gas: Sector Performance Beats Broader Market; Selective Buying Opportunity

H-shares of the Big Three Chinese oil and gas players outperformed the Hang Seng Index year to date. We maintain our fair value estimates for CNOOC (HKD 18.00 per H-share, CNY 16.60 per A-share); PetroChina (HKD 6.50 per H-share, CNY 6.10 per A-share); and Sinopec (HKD 5.60 per H-share, CNY 5.10 per A-share). Following the recent run-up, we think H-shares of CNOOC and PetroChina are now fairly valued, but we believe Sinopec's H-shares are still undervalued, trading at close to a 20% discount to our fair value estimate. That said, given concerns about China's slowing economy and the demand on downstream refining products, we think investors may still prefer to hold companies with direct or larger upstream exposures, such as CNOOC and PetroChina.