Should you buy Chinese stocks now?

This is a question that someone has asked me after the release of China's inflation data today. China's inflation is still high or very high but the positive point as I see it is that the economy is still continuing to grow. The rise of commodities prices is of course part of the reason for the unending inflation but if you believe what the Fed has said, slowdown would mean moderation of inflation. I am quite optimistic that inflation in China will be kept well under control.

Once inflation can be kept within tolerable limits, we may hopefully see some fresh movements in the stock market. Real property stocks have fallen so badly that you can't recognize them! But I am sure they will go back to normal if but only if our dear speculators keep their hands off those stocks. Please do not come to China to pull up our stocks to create bubbles! We welcome genuine investors who place capital in China as long-term investments but I do hate short term speculators who victimize the ordinary Mr. Markets on our street.

The other group that you may feel interested is natural resources and commodities stocks. You know they have also fallen so badly that you can't tell which is which. All the metal or mineral stocks have cut their prices by more than 50% now and what is attractive is that their P/Es have come in line with those of comparable stocks in other markets. Common sense would tell you that China still needs a lot of natural resources, more oil, more minerals, more gold, more grains, more meat, more dairy products, more wines, more ..... If you have a long term horizon, holding commodities stocks should at least be a good hedge against inflation if not a good guarantee for capital gain.

Now what about Chinese banks? Yes, I am also optimistic. Why? They are mostly state-owned or controlled and with this support, their businesses are always protected. They are, if you want a comparison, like Fannie and Freddie and there is absolutely no risk that they may fail. Holding their stocks may not give you spectacular returns but would certainly give you reasonable dividends and gradual capital gain. Moreover, banks like ICBC are expanding their operations overseas and this is most encouraging.

Well, my only question is: is it time to buy? We don't want to catch a falling knife nor do we want like to miss good buying opportunities. But you can never time the market. So what should we do? Go back to the basics: value the business, measure the margin of safety and avoid being guided by Mr. Market.

Still we are human and we won't be too human if we don't place a little bet. Let's wait until we see a giant foreign company listing its shares in Shanghai and that must be the time to buy and hold.