© Reuters. Chinese Shares Make a Big Comeback

Chinese shares rallied big time on Thursday, driven by bargain hunting, better than expected inflation numbers, and the easing of trade tensions between Washington and Beijing. Shares of Alibaba (NYSE:) gained close to 9 percent in early morning trade, while Baidu (NASDAQ:) shares gained close to 6 percent.

I’m bullish on Alibaba and Baidu.

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Bargain Hunting

Bargain hunters are beginning to warm up to Chinese shares, following the recent rout that has driven the valuation of market leaders like Baidu (BIDU) and Alibaba (BABA) near their cash values.

Baidu’s current Total Cash per Share is $486.36. Its Total Debt is 89.20B, and its current share price is $162.09.

Alibaba’s current Total Cash per Share is $177.75. The company’s Total Debt is $181.24B, and its current share price is $161.52.

One of these bargain hunters is Charlie Munger, Warren Buffett’s Berkshire Hathaway (NYSE:) (BRK.B) vice-chairman. According to a regulatory filing, the legendary investor, a firm believer in China’s potential, raised his position in Alibaba by nearly 83% in Q3.

Apparently, Munger’s position in Alibaba is a vote of confidence in the company’s future. Thus, the big rally in the company’s shares on Wall Street in Thursday’s regular trading session spread to other listed companies’ shares.

Analysts are on the same side as Munger. They see Alibaba’s shares trading 52.4% higher, 12 months from now. The average Alibaba price target is $246.20, and is considered a Strong Buy, with 24 Buy, 2 Hold and 1 Sell ratings.

Easing of Inflation Fears

Adding to the positive investor sentiment about Chinese stocks were better-than-expected inflation numbers, which were released on Wednesday. For August, China’s annual inflation rate came at 0.8 percent, below the market expectations of 1 percent, driven by lower food prices. That’s the lowest number in five months, easing fears of China’s central bank raising interest rates.

Easing of Trade Tensions between Washington and Beijing

Trade tensions between the U.S. and China have been a headwind for Chinese shares. They induce fears of the rise of sanctions that could limit trade between the two countries, and consequently hurt the profitability of Chinese companies with big exposure to the U.S. market.

The good news is that these fears eased this week, following a high-profile meeting between Yang Jiechi, China’s top diplomat, and U.S. National Security Advisor Jake Sullivan.

“The meeting showed that both China and the US are willing to enhance strategic communication, managing disputes and bringing bilateral ties back to the right track,” Diao Daming, an associate professor at the Renmin University of China in Beijing, was quoted saying in the Global Times on Thursday.

In short, after several dismal weeks, things have begun to look up for Chinese shares. High-profile bargain hunters are beginning to emerge, tensions between Washington and Beijing are easing, and the macroeconomic environment is improving.

Disclosure: At the time of publication, Panos Mourdoukoutas owned shares of Alibaba and Bidu.

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