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China’s Stocks posed for Rebound: HSBC Fund Venture Says

By JC | December 26, 2008

After a year of amazing gains for the Chinese stock market, the global economic crisis has caused the overall market to tumble to prices not seen in years. Emerging markets, once thought to be immune to the US Financial Crisis and sought after for it, have taken a very severe hit in the past few months. It wasn’t long ago when Warren Buffett sold its investment in Petro China (PTR) under the claim that the Chinese Stock Market was too hot, and surely the past year has proven his decision wise. However, the Chinese growth potential is still there: more than 1.3 billion people is a huge market for any company. Investors want to know when China will be again and investment target.

The recent article published by Bloomberg tries to address this question for investors. If you look just at the price on the indexes we are about late 2006, early 2007 levels. However, “Valuations are at the lowest since 2002” based on PE ratios or Book values according to a recent report from an HSBC Fund Venture. The report advises investors to invest in consumer and energy-saving stocks. “The squeezing of bubbles in 2008 has already come to an end.”

The recommendation to buy consumer and energy-saving stocks comes from the understanding of the major moves by both the Chinese Central Bank and the government to boost spending. As exports fall, China is looking for domestic consumption to compensate for it. Central Bank Governor Zhou Xiaochuan spoke to that effect just today. Furthermost, the Chinese government is looking into phasing out incandescent lights in favor of more energy efficient lamps. With the tremendous growth China has enjoyed, providing the energy and infrastructure for it has become a rather complicated matter for China. Becoming more energy efficient would not only promote spending in the short term, but also allow for their infrastructure to be more sustainable and far reaching.

Although the CSI 300 index is by far not the cheapest when compared to the other BRIC nations’ comparable valuations, the market expectation is that China is better posed to rebound due to the massive tax cuts and funds it has to invest in equities. HSBC recommendations are well founded and investors should once again look into investing in China, particularly the energy-saving and consumer goods stocks.

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