We have made plenty of noise about the improving China (FXI, quote) macro and the stimulus that is being dripped into the economy (the latter helping the prior) and now it seems that the street is starting to take notice and global and “cross-over” investors are voting with their feet.

china_ballWe have started to hear emerging markets (EEM, quote) strategists and global investors cross over talk of China’s valuation argument (11X current or multi-year lows) and we would agree.

We have also written and proper trades in the Chinese internet sector and have highlighted components of our Emerging Money China Internet Index (EMCHI).

Where we have been a little surprised by is the move in the China (FXI, quote) ETF up by 24% since March lows and the broader SOE’s (state owned enterprises) that had been left for dead over the last few years.

Look no further than China Mobile (CHL, quote) and you can see an example of a company with enormous problems but massive potential starting to break out. China Mobile is up over 25% from the March lows on finally executing on 4G rollout and thus higher data and services charges helping ARPU outlook. Apple being part of this equation hasn’t hurt.

Clearly, from investors’ perspective, China is back and should be on your radar screen. Last night’s price action was significant: the SHCOMP was +2.4% gain to close at a seven month high on the heaviest volume since September 2013.

This index has broken out as there are whispers the PBoC is injecting liquidity to regional banks. The price action in the Chinese internet space also deserves a look despite the big run-up as earnings are just coming out from the core players in the sector and so far the top line looks great.

Investors remain very underweight China and credit headlines will keep many sidelined and here in fact lies the opportunity.

Picking stocks in China us challenging due to governance concerns and lack of transparent data and corporate access but those who can target largest names with significant reporting history and investor relations will find some real bargains as the broader macro improves.  

CHL

 

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