Berenberg analysts told investors in a note Monday that the firm sees the “potential for a value trade in Chinese equities.”

The analysts noted that the Chinese economy is facing significant headwinds, including an over-levered real estate sector, declining imports and exports, weak domestic demand, and a high and rising youth unemployment rate, all contributing to a slowdown in Chinese economic activity.

With Chinese equities having delivered a -1.5% return year-to-date compared to U.S. equities delivering +14.9% year-to-date, the “valuation gap between the two markets has not been wider since the early 2000s,” said analysts.

“Should Chinese authorities look to enact policy support, we see the potential for a value trade in Chinese equities,” they wrote.

The analysts added: “Investors have shunned Chinese equities in recent months. Buying the Chinese equity market when it trades below 7x P/E, as it does now, has been a profitable strategy since 2000, delivering a median 12-month forward return of 22.3% versus a market return of 9.1%.”

Berenberg believes in the shorter term, Chinese authorities “may look to monetary and fiscal policy to paper over the cracks.”

“Given the deep discount to history that Chinese equities trade on, there could be the potential for a value trade should policy support emerge, although the geopolitical backdrop remains challenging for investors,” analysts concluded.