Investors have plenty of reasons to buy into China these days. Fears of a more restrictive government may make the world's most populous nation a contrarian wager right now, but several factors keep China attractive for long-term investors:
- China's economy continues to grow faster than that of the rest of the world, particularly its fully developed nations.
- The yuan will inevitably head higher, propping up the value of Chinese equities, revenue, and earnings for stateside investors.
- Low overhead and attractive tax rates create ridiculously chunky net profit margins for many of China's leading companies.
- Earnings growth is impressive, even in industries such as real estate and Web-based video games, which are struggling closer to home.
Jaded investors may agree with most of these bullet points, but they ultimately want to know what kind of premium they'll pay for these opportunities. Thankfully, there isn't much of a valuation markup on some of China's leading stocks. In many cases, they actually trade at a discount to their slower peers abroad.
Consider the forward P/E ratios of several Chinese stocks that caught my attention:
|
Company |
2010 |
2011 |
|---|---|---|
|
China Telecom |
20.3 |
17.1 |
|
E-House |
18.8 |
14.8 |
|
PetroChina |
10.6 |
6.8 |
|
Perfect World |
10.0 |
8.1 |
|
Sohu.com |
15.0 |
11.9 |
|
Focus Media |
22.0 |
15.6 |
|
China TransInfo |
8.6 |
6.5 |
Source: Yahoo! Finance, Forbes.
China's geopolitical risks remain substantial, which partly explains the markdowns. But check out that swift drop in earnings multiples between 2010 and 2011! That's earnings growth hard at work. Investors just need to take the time to notice.
