DESPITE a worsening economic picture in China, some global investors are starting to tiptoe back into the nation’s stocks because they are cheap.

The Hong Kong China Enterprises Index, which tracks mainland companies listed in Hong Kong, has fallen 1.3 percent this year but that has made their valuations attractive to some buyers. The forward price to earnings is at seven times, near historical lows, compared to the broader Hang Seng Index, which is at 10.7 times.

Some fund managers also believe China will take more measures to support the slowing economy.

Audrey Kaplan, a New York-based fund manager at Federated Investors, started buying again in March, after selling all her China holdings in 2010. Holdings of Chinese companies now account for around 9 percent of the US$522 million Federated InterContinental Fund she manages.

“Over the next eight years, we expect that the Chinese middle class will add 250 million households” that will boost spending on items like cars and leisure travel, said Kaplan. She’s been buying clothing company Bosideng International Holdings Ltd., auto manufacturer Dongfeng Motor Group Co. and Air China Ltd. “The government has made it very clear that they want to promote growth.”

The recent earnings season also reflected the weakening economic outlook, with only a quarter of the 40 mainland stocks traded in Hong Kong beating consensus estimates, compared to a third of companies that undershot expectations.

Nevertheless, Dutch asset manager Robeco Group, which has US$20 billion of assets under management in Asia, recently moved to a slight overweight stance towards China.

Even for funds focusing on China, the low valuations are prompting more buying.

“Investors are too bearish about China,” said Yuming Ying, managing director at China Eagle Asset Management, which manages US$30 million in Hong Kong. He’s been buying bank stocks because he says worries over bad debts are not as serious as many think.(SD-Agencies)