Chinese Stocks Look Ready to Rally

Chinese stock valuations have tumbled to a record low compared with those in Hong Kong, a sign to investors that mainland equities are poised to rally even as the government cracks down on inflation. The MSCI China Index began its retreat on Nov 8, 2010 after the country's policymakers stepped up efforts to reduce inflation by raising interest rates on Oct 19, 2010. The MSCI Hong Kong Index, meanwhile, rallied 26% between July and December, beating China shares by the most in nine years and pushing its valuation to 17.5 times earnings, the highest ever compared with shares on the mainland. Global investors are bracing for a financial crisis in China, with 45% saying they expect one within five years and another 40% anticipating a meltdown after 2016, according to a quarterly Bloomberg Global Poll of 1,000 Bloomberg customers who are investors, traders, or analysts.