Analysts see value in banks battered by losses Volatility this year has pushed the local market into a tailspin and sent investors running for the hills. But after piling up frustrations and losses, the recent downturn may also have given investors something else - a chance to buy. 'In the next two to three months, you will find very good buying opportunities in the China space,' says Frank Gong, a chief economist at JP Morgan Securities. Investors last year scrambled to secure a piece of the China story and paid through the nose to get it, sending the H-share and MSCI China indices soaring. But they have since come crashing back to Earth, as ominous signals from US markets sparked concern that the world's largest economy would slump, sending waves across the Pacific. Hong Kong's H-share index has lost nearly half of its value since its October 30 peak, plummeting 41.71 per cent to close in on a seven-month low at 11,891.42. The H-share index still ranks among Asia's more expensive benchmarks, but it trades at just 16.89 times earnings - from a level of 32.34 last October. Meanwhile, the MSCI China index through Thursday had plunged 24.55 per cent this year and traded at 19.56 times earnings, nearly half its October level. Heavy losses may have spooked investors into thinking that the benchmarks are not out of the woods, but investors should not discount possible buying opportunities, Mr Gong says. 'There are a lot of stocks you can buy instead of painting the market with a broad brush,' he says. Mainland banks have been sold off so much that they have caught the attention of some investors, even after factoring in concerns about possible slowing loan growth and squeezed margins. 'I like China banks, especially at current valuations,' says Mona Chung, a fund manager at Daiwa Asset Management. 'As a long-term investor, I think that is really good value.' Leading mainland banks have been battered by losses this year, with China Construction Bank and Industrial and Commercial Bank of China shedding 18.76 per cent and 12.14 per cent, respectively. Investors could also try to take advantage of the booming economic growth by buying into sectors like infrastructure and consumption, which are best positioned to benefit from domestic demand. Consumption levels have surged on the mainland as rising wages have fuelled the fastest year-on-year acceleration of retail sales since 1996, with sales picking up 20.2 per cent in January and February. Tsingtao Brewery is just one mainland company that is well positioned to tap into strong domestic demand and add some fizz to its already bubbling returns, Mr Gong says. Despite having raised its profits last year by 46.09 per cent to 447.9 million yuan (HK$491.8 million), according to Bloomberg data, shares of the world's 10th-largest brewery are down 22.52 per cent so far this year. Market observers say that infrastructure giants like China Railway Construction Corp and China Communications Construction are appealing because they should benefit from Beijing's massive development plans. But many investors are not willing to stick their necks out until they can see some signs that the markets have turned the corner. Mainland stocks are under too much pressure from outside factors in the near term to be able to mount a rally, says Teresa Chow, a fund manager at RBC Investment Management Asia. She says she will wait for the reporting season next month. 'By then I think the market will have a clearer picture and will also be more certain,' she says. Investors have also taken a pause after inflation spiked across the border last month. 'There's a lot more monetary tightening to come in China,' says Jim Walker, managing director of Asianomics. 'Unless you're really confident that the markets are going to avoid monetary tightening, then I think it is too early to be jumping in.' But the surge in inflation last month could be an anomaly because it was inflated by food prices that were exacerbated by the worst blizzards in the mainland in more than 50 years. The government will likely avoid pursuing an aggressive series of rate cuts to deal with a temporary distortion, Mr Gong says. China is also unlikely to be significantly affected by a US slowdown. The two countries are still strongly linked, but their fundamental connection has lessened as other emerging markets step up their trade with the mainland. 'Emerging markets are the engine for the global economy and there's absolutely no doubt about it,' says Jonathan Garner, head of emerging markets strategy at Morgan Stanley. 'Many people are still trapped in this mindset that the US is the core and emerging markets are the periphery, and we are long past that.' And just across the border, the key cog in that engine does not show any signs of a serious slowdown, Mr Garner says. 'We don't think China has fundamentally changed,' he says. 'The kind of underlying economic drivers that have been so spectacularly successful have not changed.'