Is China a buy or isn’t it?

Last week, Taipan Daily editor Justice Litle gave six reasons why the China bears are wrong. Justice says continued growth, the recent correction in oil and the country’s personal savings rate mean China’s fundamentals are strong.

However, J. Christoph Amberger in Today’s Financial News says analysts who predict Armageddon for America based on a 20% drop in the Dow and discount a 60% drop in the Shanghai Stock Exchange may just have sand in their slide rules. 

Ian Davis in The Growth Stock Wire says it’s a tale of two contests in China…

Despite the success of the Olympics, Chinese stocks are in the gutter. According to Ian:

The index that tracks shares available to mainland Chinese investors, the Datastream ‘A’ Shares China Index, is down 58% from its October 2007 peak. Each time this index looks like it’s ready to begin a sustained rally, it simply gets hammered again. Chinese investors may be happy watching the games, but they’re losing a fortune in the stock market.

However, this may set up a great buying opportunity for investors…

Huge declines like this often create great values. In a bull market correction like this one, the earnings (the “E” in P/E ratio) often remain healthy, but share prices (the “P”) go far beyond what anyone thinks is possible. Thus, you get stocks selling for low P/E ratios… say under 12 [...]

China’s P/E ratio has dropped to 16. This is still significantly higher than its long-term median of 10, but significantly lower than it was a year ago. Chinese shares also trade for a price-to-book ratio of nearly three, so they’re not a screaming buy yet.

Ian says wait until shares sink to less than 12 times earnings and less than two times book value before buying.

Source: Are Chinese Shares a Buy? Here’s the Answer…