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SCMP Reporter

After another sell-down in China shares yesterday, stocks were cheap enough to allow a cautious leap back into the market, according to analysts.

The Hang Seng Index fell a slight 0.98 per cent to 12,148.81 points on razor-thin turnover of HK$5.13 billion but Hong Kong's China-related sector had another day of selling.

The H-share index slumped 4.35 per cent while the red chips declined 3.34 per cent on the back of a huge sell-off on mainland markets.

However, rather than recommending heading out on to the window ledge, analysts said this marked the time to buy in.

'Everybody thinks the bubble has already burst but arguing whether or not the bubble has burst doesn't help. What helps us is if you believe some stocks are now crazily, ridiculously cheap,' CMG First State Investments fund manager Yang Liu said.

She cited PetroChina, Denway Motors and Zhejiang Expressway as being among Hong Kong's more attractive China plays.

Merrill Lynch China research head Lan Xue, who prided herself on her contrarian views regarding the China rally earlier this year, also said the sell-off marked a good entry point.

'I'd be buying from here on. H shares have clearly started to offer value,' she said.

Core-Pacific Yamaichi Securities research head Alex Tang Yee-yuk said strong interim results from some H-share companies had convinced him that China stocks were not a spent force.

'It's definitely overshot on the downside,' he said.

Mr Tang said one problem was that investors were too focused on last week's profit warnings from 100 mainland companies; only eight of them were listed H shares.

'That was a major culprit. Only eight companies, as far as the [54 listed] H shares are concerned, gave warnings. Investors are still looking at these eight companies and ignoring the others,' he said.

Dao Heng Securities market strategist Eric Wong said the recent sell-off had been driven by sentiment - caused partly by the profit warnings - but the satisfactory interim results from the H shares would warrant a re-rating on the sector.

'Some investors will start accumulating quality H shares and at these prices, on six-month outlook, these stocks will outperform,' he said.

Analysts recommended careful stock picking rather than across the board buying.

'You have to stay nimble and being nimble is picking up fundamentally strong stocks. That's the thing to do so when the market starts to recover or rebound, you are in pole position,' Ms Liu said.

She took the opportunity yesterday to buy Denway Motors at $2.125. The stock closed for the day unchanged at $2.30 and Ms Liu said she intended to offload them today.

'This is a typical example,' she said, of the kind of trading necessary to brave the China sector.

However, she acknowledged that for all the words of comfort there was little to smile about.

'At a time like this, it's very depressing but it will distinguish whether or not you are a good fund manager.'

Davidw@scmp.com

Key Figures

Close: 12,148.81 (- 120.27)

Turnover: $5.13 bln

Volume: 4.63 bln shares

Day's high: 12,255.53

Day's low: 12,091.21

Advanced: 111

Declined: 508

Unchanged: 413

August futures: 12,142 (- 59)

September futures: 12,160 (- 60)



Players recommend select China shares following run of heavy losses