“Good call on China David! I remember you telling us that valuations were cheap when everyone else was predicting a hard landing for China.”

David Fuller's view

Thank you for your thoughtful comment and many congratulations if you are profiting from a decision to participate, based on your own conclusions. 

China is definitely harder to analyse than most stock markets.  Nevertheless, my impression was that the most bearish arguments last year were coming from some very high profile hedge funds that were heavily short, and talking to the press at every opportunity.  They influenced quite a few people, although we have heard less from them this year. 

China has plenty of problems (what country does not?) but its anti-corruption campaign is in the country’s long-term interests, particularly if it is not politically selective.  The government is using its own version of QE and a strong stock market recovery, in which many middleclass Chinese citizens are now participating, will improve sentiment, lower negative deflation, and increase consumer spending.  This will help GDP. 

China is the world’s second largest economy, with a terrible pollution problem which is now being addressed, but increasingly superior infrastructure relative to what people see in the USA.  The Hang Seng China H-Shares (HSCEI) Index (p/e 9.79 & yield 3.13%) is still cheap relative to the S&P 500 Index (p/e 18.43 & yield 1.99%), according to Bloomberg.  HSCEI is also in form, up 14.79% in USD so far this year, relative to 1.20% for the S&P.  In fact, the USD and CNY are virtually unchanged so far this year.