Investors should continue to steer clear of Chinese stocks, analysts warn. Here is what needs to change before they become a ‘buy.’

Valuations in the Chinese stock market are collapsing in the new year, heaping more pressure on shares of some of the most respectable companies trading in the world’s second-largest economy. These steep January declines followed multiple years of losses for the Hong Kong-based Hang Seng Index, along with other indexes that track the performance of shares trading in the mainland, according to FactSet data.

So far, the worsening selloff is spurring a debate on Wall Street about whether Chinese shares are bombed-out enough to justify scooping them up on the cheap. Take Alibaba Group Holding
BABA,
+7.85%
for example. The company is presently trading at a forward price-to-earnings ratio of around eight, the lowest level since its 2014 IPO, according to FactSet data. It’s currently trading at around $73 a share on Tuesday, having risen 6.9%, leaving it on track for its best daily session since July. While investors are typically wary of trying to “catch a falling knife”, to use markets jargon for timing the bottom, at least one veteran analyst has shared a few ideas about what it might take for Chinese stocks to experience a lasting rebound. “Bottom line, Chinese stocks have been hit by a series of (mostly) self-inflicted wounds from a policy standpoint and until there’ …

Article Attribution | Read More at Article Source