Chinese shares have fallen so much this year that its markets now offer bargains galore. Just about everywhere you look, some of the world’s most exciting companies are going for a song. China’s “great spring sale” has kicked off. And we’re going bargain hunting.

Take the Guangshen Railway Co., for example. It operates trains in China’s richest province, Guangdong. Analysts expect that its net earning will grow by 41 per cent over the next two years. Contrast that with America’s second biggest railway company Burlington Northern Santa Fe. Burlington is expected to grow earnings by 31 per cent over the same period.

At the end of last week, Guangshen was trading at a price-to-earnings ratio of 17.3. Burlington was trading at a P/E of 20.8. So, right now you can pick-up the faster growing Chinese company at a 17 per cent discount to Burlington.

Why am I focusing on Burlington? Because investment legend Warren Buffet sees it as one of the best investments available in the U.S. He has bought about 20 per cent of the company already and is keen on adding to his holding.

Guangshen isn’t a one-off case either. Look at Aluminium Corp. of China Ltd. (Chalco). It is offering investors twice the profit growth of America’s Alcoa Inc – the world’s biggest aluminium company. Chalco’s Hong Kong listed shares now trade at a P/E of 14.5. That puts them at an 11 per cent discount to Alcoa.

So many bargains… so little time…

China’s CSI 300 Index, which tracks the leading companies on both of China’s stock markets, has fallen by 32 per from its October peak. That’s the biggest decline among the world’s 20 biggest equity markets. Hard luck if you were already invested in it, but excellent news if you’re looking to get in.

The slump has narrowed the CSI 200’s price-earnings gap with the Standard & Poor’s 500 Index to just 13 per cent at the end of last week. It was 139 per cent at its October peak. Companies in the CSI 300 now trade at an average price-earnings ratio of 26.4, down from a record of 52.8 in October. So, right now, they’re just slightly above the 23.4 ratio for the S&P 500. And China’s higher growth rates justify that.

But take a look at the Hang Seng China Enterprises Index. It measures the performance of 42 major Chinese companies that trade in Hong Kong. It has been cheaper than the S&P 500 since March and is now valued at 18.1 times profit. That puts it on a 12 per cent discount to the U.S. markets.

China is over-sold

That brings me back to a point that I have been making here in this newsletter – The Asian markets have been massively oversold. A correction was in order, but the current sell-off has gone beyond what can be justified by the fundamentals.

The CSI 300 surged by 478 per cent over the last two years as China’s economy continued to race ahead and the government increased the supply of state-owned shares. But valuations clearly got well ahead of themselves. The rally fizzled this year on fears that prices had outstripped earnings prospects, that new share sales would overwhelm demand and that the highest interest rates in nine years will slow profit growth.

But those fears have been overblown. Chinese companies’ earnings actually grew by 5.5 per cent in the first three months of this year. Things haven’t gone so well in America. U.S. companies profits have dropped by 16 percent in the first quarter. China is clearly the better bet right now. Even after this years’ declines, the CSI 300 is still 322% higher than it was three years ago.

A good time to buy in.

So, the correction in China provides a good opportunity to get in. A lot of the best companies are now trading on very attractive valuations. Even if we make allowance for overly optimistic growth forecasts for some of them, they still offer much better value than you are getting in the West right now.

How do we best play this? I like the country’s transport sector. The Chinese economy is still booming; and so is most of Asia…

I am tremendously bullish on Asian shipping companies at the moment. Right now, I see fantastic value in this sector, and nowhere better than in China.

Regular Profit Hunter readers will be receiving my brand new Chinese shipping recommendation very shortly. Get in on this service now so as not to miss out on our latest tips, reports and much, much more…

Regards

Manraaj Singh

Profit Hunter
Editor

Source: Chinese Share Panic Gives Us Once in a Lifetime Opportunity