Are Chinese Stocks Undervalued? Is it the Best Time to Invest in Them?

Wall Street always keenly analyzes foreign stocks. There was a suggestion by one of the leading analyst that investing in foreign stocks may be the best thing for 2010. Brazil stocks have been showing remarkable returns for the last few years. BRIC countries are being pointed out as the best investments right now. BRIC includes Brazil, China, Russia and India. So how about investing in Chinese Stocks?

Are Chinese stocks undervalued? As China moves from an export based economy to the consumption based economy, the potential of a stock market boom is always there. One fund manager considers Chinese stocks to be good bargain that can triple in prices in 2010.

However, a word of caution. Chinese banks have been lending fast since 2008. When banks start lending fast, they tend to lower credit quality standards. What this means is that today's good loans can easily become tomorrow's bad loans.

Secondly, Chinese government had announced a huge domestic stimulus package that was meant to ward of recession taking hold of the Chinese economy. But the problem is this that when government starts spending huge amounts, most of the money can get stuck up in constructing bridges to nowhere. In other words, money can get stuck up in non productive political oriented projects. So there is always a danger of a bubble developing.

The residential property market in China is bubbly. There is a lot of construction taking place but few apartments get rented. One reason can be Chinese just love owning apartments and don't mind if they can't rent them. China has become the largest consumer of gold replacing India recently. Chinese are buying gold in huge quantities. This might also be one of the reason of gold prices going up in the world market.

Now, if there is property market bursting, gold can be the winner. Gold buying has been on the surge in China as people are anticipating a property market bursting. So, China presents a complex economic picture that might not be easy to predict.

A few fund managers were short on Chinese stocks recently but they have started to go long. Most of them view Chinese stocks doubling in the next six months. Whatever, when you decide to invest in Chinese stocks, you need to do your due diligence. Do thorough research as there have been reports of bad auditors and shady accounting practices. Prospects of Chinese stocks getting double in the next six months are always there but before investing always remember to do a thorough research.

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