Time to Buy the Dip in China?

China’s consensus forward valuation is about 9x PE, similar to all other crisis except for the Global Financial meltdown in 2008 (6.6x). The market is definitely cheap and the recent rally was primarily due to buying support as directed by Government linked corporations. However there was no distinct clarity on the macro front because the economy is still held ransom by the property slump. The good news is recent macro data have been better than expected and this could be needed impetus for a sustainable rebound (Table: China’s factory activity). This together with a recovering US economy should benefit EM equity market, hence our tactical allocation to buy the dips.