Nothing has baffled traders more in recent times than the price moves in Chinese Stock markets. Forever the favorite of value investors and analysts, the broader A-share market has underperformed almost all the other major markets. And to top it all, its precariously close to its 2008 low even today, when most of the other big global markets have almost doubled from their lows.
What a difference a few years make, and it seems almost yesterday day when the market was going bonkers with Shanghai Composite making crazy new highs. The world had at last discovered China, and at its peak it traded at valuations above 60 (Price/Earnings). We are now far away from those times, and currently the market in spite of being a darling of many a traders, have failed to move higher. Much of it has to do with lack of domestic buying support, and very small QFII limits - so foreigners still can't buy much in the market. However, things seem to be changing with talks of further increase in QFII quotes in times ahead. We may see foreigners being allowed to purchase more of the market, and given the high growth rate in the economy, won't be surprising to see buyers queuing up for it. Even today, only a small proportion of the A-share market is owned by foreigners, and as the market opens up, there will be a re-valuation of the market. It may happen in 2013, with the leadership transition behind us. I think we would see a gradual up move in the Shanghai Composite, and can see the index bouncing off soon from its 2000 levels.
It would further take a few more economies up alongside, notable ones being Australia and Taiwan. AUD is already trading at high levels (above 1.04), and can see further strength in the market on the back of china bottoming out. Taiwan being a big trading partner of China would see some demand as well, and things should improve there as well.
This year end, should try to invest some in China dedicated funds - expecting the market to pick up some time around Q1 next year, and see the market reaching 2500 before 2013 year end.
