Why on earth should investors avoid A shares, or yuan-denominated stocks that trade in Shanghai or Shenzhen? Recent economic data has been surprising to the upside: valuations are cheap; government policies are supportive; and most importantly, the mainland's retail investors appear to buying again.
The mainland's macro data is undeniably improving. Purchasing Managers' Index, an indicator of manufacturing activities, has ticked up above the (expansionary) 50 level; inflation remains benign; and Thursday's strong export trade data shot the lights out.
But assuming economic growth goes hand-in-hand with market gains is a classic investor error. Since 2008, the mainland's economy has expanded (in nominal terms) by a staggering 110 per cent; the Shanghai Composite, conversely, has contracted by 58 per cent.
Valuations are critical, of course, and on that basis the mainland's onshore market is one of cheapest in the world, with a price-earnings ratio in the high single digits. But as Japan has long taught us, what is cheap can become cheaper still.
