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China Stocks Cheapest 'I've Ever Seen': Index Pioneer
CNBC.com | October 27, 2011 | 03:55 PM EDT

Chinese stocks are extremely undervalued and U.S. investors should heavily increase their exposure to benefit from the emerging market's long-term growth, says Burton Malkiel, author of the financial classic "A Random Walk Down Wall Street."

“These are the most attractive multiples I’ve ever seen,” said Malkiel, 79, who pioneered the indexing investment philosophy, at a speech Wednesday for Guggenheim Funds at the New York Stock Exchange.

The economist was referring to a slide showing several valuation metrics—from the price-to-earnings and price-to-book ratio—for the AlphaShares family of China indexes he created.

Malkiel helped forward the efficient market hypothesis—that prices of stocks immediately reflect all public information—with his 1974 classic now in its 10th edition. The professor of economics at Princeton argues that this hypothesis means investors are better off buying and holding a large basket of stocks through indexing, rather than relying on active fund management. He turned his sights to China about eight years ago.

As one would expect, Malkiel made clear that he wasn’t making a market timing call to buy China immediately, but rather saying that investors will be forced to increase their exposure to the world’s most populous nation over time as its economy transitions to more domestically focused and its currency begins to rival the dollar.

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