China was among the casualties of the recent relatively indiscriminate selloff in emerging markets, leaving its shares cheaper than laggards Turkey and Argentina and potentially opening a bargain buying opportunity.
"With an estimated 2014 P/E (price-to-earnings ratio) of 8.1, China is cheaper than Turkey, whose economy is in a tailspin. With China's industrial profits growing at a robust 12.2 percent year-on-year, this makes no sense to us," David Goldman, managing director at global financial services group Reorient, said in a note.
"That makes China the cheapest major market in the world on a forward-looking P/E basis (and the cheapest it's ever been)," he said.
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China shares have been trading like an emerging market index, he noted. "That can't be right. A great deal of the emerging market index reflects commodity exporters who have suffered in the deflationary headwinds, while China benefits from lower raw materials prices."
Indeed, some are predicting a big jump in China equities. JPMorgan expects a 15-20 percent rebound, to an implied 10 times earnings, in coming weeks as focus shifts to two key political meetings which should kickstart the country's reform agenda.
Others have also noted a disconnect between China shares' performance and its relatively stable economy.
"It appears that the market believes that China's economic situation has deteriorated by as much as those in Argentina and Turkey in recent weeks," Jun Ma, chief economist at Deutsche Bank, said in a report. "This market perception of China is wrong."
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He noted the China H-share index has fallen by 16 percent since the beginning of December, nearly as much as Turkey's 22 percent fall in U.S. dollar terms and Argentina's near 20 percent decline and topping Brazil's 12.7 percent fall.
But those countries' declines were triggered by factors that don't apply to China, he said, with their currencies depreciating sharply amid concerns of fund outflows as the U.S. Federal Reserve began to taper its asset purchases. In addition, other emerging markets face concerns such as high inflation, fears of external debt crises and political instability, he noted.
"We strongly believe that China's economic fundamentals are much healthier than most other emerging markets and China is one of the least vulnerable emerging market economies to U.S. tapering," Ma said.
China's yuan has been among the most stable emerging market currencies in the past few weeks and it's likely to remain stable this year, he said, noting that in the period from December 1 to February 5, the yuan gained 0.5 percent against the U.S. dollar while Argentina's peso (Exchange:ARS=) fell 22 percent and Turkey's lira (Exchange:TRY=) shed 8.6 percent.