Appreciating China investing to its fullest

Last year's sell off continues to provide bargain basement prices for some Chinese stocks, as the index is trading at an attractive price-to-earnings level, says Deutsche Bank Wine expert and social media guru Gary Vaynerchuk attributes his ability to detect subtleties in wine that others might not recognize because of his unique taste-testing as a teen. Because drinking wine was illegal, he says he tasted the flavors associated with wine instead. He not only ate fruits and vegetables, but also chewed on chunks of grass, dirt, tobacco and wood so he could learn to recognize the complex flavors that wine has to offer. For investors, an appreciation of China requires a similar comprehensive analysis. One significant subtlety that seems to be overlooked by investors today is China's macro policy strategy. Professor Stephen Roach in the Financial Times thinks the country has been "doing a far better job in managing its economy than most give it credit." Its actions have been deliberate and purposeful, and, most important, successful. He points to measures that China enacted to lower food inflation, along with the numerous times the country raised required reserve ratios and policy interest rates as illustrations of China's increasing “prowess” in stabilizing its economy. The positive results of the government's actions have a delayed effect, only to be detected a few months later. For example, the chart below shows how the food and non-food consumer price index (

) have declined on a year-over-year basis over the past several months. CPI is now at its lowest level since July 2010, says CLSA. Continue reading this article

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