It’s going to take more than the world’s deepest stock-market selloff to turn China into a destination for international bargain hunters.
Even after a 40% tumble in the Shanghai Composite Index over the past 12 months, valuations for China’s domestic A shares are three times as expensive as every other major market worldwide. The median price-to-earnings ratio on the nation’s exchanges is 59, higher than that of US technology shares at the height of the dot-com boom in 2000.
One year after China’s equity bubble peaked, valuations have yet to fall back to earth as government intervention keeps stock prices elevated at a time of shrinking corporate profits. For money managers at Silvercrest Asset Management and Blackfriars Asset Management who predicted last year’s selloff, China’s weak economic growth and fragile investor sentiment mean it’s too early to jump back into the $6tn market.
“We do not own any A shares,” said Tony Hann, the London- based head of equities at Blackfriars, which oversees about $270mn. The firm’s Oriental Focus Fund has outperformed 83% of peers this year. “The bull case seems to be that I can buy at this P/E because someone else will buy it from me at a higher P/E. 
The biggest risk is that investor psychology on the mainland changes.”There’s plenty for investors to be worried about. After expanding at the weakest pace since 1990 last year, China’s economy shows few signs of recovery. Earnings at Shanghai Composite companies have declined by 13% since last June, while corporate defaults are spreading and the yuan is trading near a five-year low. Yesterday, the Shanghai Composite fell 0.2%.
The gloomy outlook is a stark contrast to the mood this time last year, said Pan Lizhi, a 54-year-old retiree in China’s Hunan province.
Like many of the country’s 106mn individual investors, Pan traded shares almost every day during the bubble, hoping to ride a boom fuelled by explosive growth in margin debt and the official endorsement of state-run media. Now, she spends most of her time watching TV. Of the 320,000 yuan ($48,860) in her brokerage account, all but 6% is parked in cash.
“I don’t foresee a bull market in the coming year,” Pan said.Brokerage analysts are more upbeat. They still see gains for Shanghai Composite companies, with share-price targets compiled by Bloomberg signalling a 13% rally over the next 12 months. Potential catalysts for gains include this month’s MSCI decision on whether to include mainland shares in its international indexes and the anticipated start of an exchange link between Hong Kong and Shenzhen.
Bulls say the downside for share prices is limited by government intervention. China Securities Finance Corp, the agency armed with more than $480bn to prop up the market last summer, still owns at least $77bn of mainland equities, according to exchange filings compiled by Bloomberg. 
The true scale of government support is almost certainly even bigger, with cash from CSF and other state funds flowing into the market through multiple channels that don’t always show up in public disclosures.
Not everyone is concerned about China’s valuations. While the market’s median price-to-earnings ratio is an appealing metric to some analysts because it downplays the impact of low- priced bank stocks with big index weightings, others prefer an aggregate measure that gives more influence to the largest companies. On that basis, the Shanghai Composite trades at 16 times reported earnings, cheaper than the S&P 500’s multiple of 19.
“China’s actually quite attractive,” said Sam Polyak, a Boston-based money manager at Fidelity Management & Research Co, whose $71mn Fidelity Total Emerging Markets fund invests in A shares through the Shanghai-Hong Kong exchange link. He prefers Internet and consumer staples companies, along with select industrial firms.
Finding bargains in China is difficult because shares with depressed valuations often have problems, while firms with the best prospects are pricey, according to Daniel Morris, a senior investment strategist in London at BNP Paribas Investment Partners, which oversees $592bn.
On the low end, Industrial & Commercial Bank of China trades at 5.6 times reported earnings. 
The nation’s largest lender has dropped 16% over the past year amid concern that a surge in non-performing loans will erode profitability. Leshi Internet Information & Technology Corp, which boosted revenue by more than 90% in 2015 and was one of the darlings of last year’s bubble, has a multiple of 175.