Consider_this

Ultimate Economic Showdown: China vs. the U.S.

China's exchange "PEG" with the dollar hasn't changed, despite USD raising almost 20%+ in a short time. It has gradually floated "up" from 1 dollar = 8 yuan at about Jan 07, to about 1 USD = 6.8 today.

This acts as a double whammy against it's exports: (A) It's export did not become cheaper from the USA's perspective even as USD climbed. It's exported goods are just as equally expensive as a few months back, if not more so. (B) The yuan increased relative to other countries, like EUR or rest of Asia, which makes these regions consume less goods from China.

Also consider that the Chinese govt has scaled back the tax benefits of exporting.

And yet, the yuan is still relatively pegged against USD and shows no sign of reversing it's climb against USD. What does this tell you?

It says that China is intentionally weaning off it's export dependence. It's yuan, as it gets strong, will one day no longer need to "PEG" to USD. A strong currency will also start to serve boost domestic consumption power.

In this backdrop...

Try pricing the China's stock market value against other measures: like EUR, Gold, etc. And you'll see that Chinese stock market didn't really drop as much as the above graph suggests.

That's pretty impressive for an Emerging Market country.

The Case for Buying China Now

The question here is not whether it will crash further. The author was trying to point out that we're pretty close to a bottom. I agree with him that the bottom is close.

Believing we'll go back to 2005 prices is dreaming, with a country growing at 10-12% GDP.

Also, waiting for a clearer sign also means that by then, the market will have gone up and it'll seem too high then. It'll always keep looking too risky and too high, since this is an emerging market. You can make the same or even more pessimistic argument (about the country not being ready, social/political risks, etc) all the way back from when Shanghai index started.

Look at an emerging market as it is, with all it's risk and reward together. There is risk, but if you believe in the China growth story, then we're very close to a good entry point if you have a 10-15 year outlook.

The Case for Buying China Now

People hear about china's stock market crashes and create a mental block about China's stocks. Looking at the chart and forward, much of the crash already happened. This is actually a good price point to enter into China.

The stampede of the 2007 is actually the worst time, yet ironically, everyone is screaming to buy china then.

Now it's a very good deal, yet everyone is ignoring China.

Go figure!

I think infrastructure play in China is the way to go. There's a lot of build out to go.