Chinese shares have fallen to levels which are well below their five-year average, and are "too cheep to ignore", HSBC said in its latest China investment atlas. "No matter whether it is in terms of price-to-earnings or price-to-book terms, some Chinese stocks are valued even lower than during the global financial crisis," said HSBC's Head of China Equity Strategy Steven Sun in the report. In the past few weeks, China has been producing a series of tepid macro economic data, and has had no shortage of bad news. The onshore bond market may soon witness its first bond default in recent history, while the Chinese currency Renminbi has fallen to the lowest level in a year. The HSBC/Markit manufacturing purchasing managers' index (PMI), which sampled small- and medium-sized enterprises, dipped to an eight-month low of 48 in March, from a final reading of 48.5 in February. It also signaled the sharpest fall of output since November 2011. Although the timing of a stock market bottom is difficult to call, downside risks have been alleviated by the depressed valuation, Sun said. Against the rest of the region, China also offers clear value. In terms of price-to-earnings multiples, the discount that Chinese equities trade at is the widest it has been since 2007, he said. The market hopes that policy makers in China take fresh steps to boost the country's flagging economy. "We think a rally might be underway due to the cheap valuations, but this is more likely to be a short-term rebound than a new cyclical bull market," Sun said. "We maintain our cautious stance on 2014 stock market performance, given the structural challenges that China needs to overcome." Sun said most of HSBC's 2014 index target forecasts are unchanged, with Morgan Stanley Capital International (MSCI) China at 68 and Hang Seng Index at 24,000. But HSBC slightly lowers Shanghai Composite Index to 2,400 from 2,500 and the Hushen 300 Index of the leading Shanghai and Shenzhen A-share listings to 2,600 from 2,800. These targets imply potential returns of 11 percent to 24 percent by the end of next year, including dividend yield. Potential return equals the percentage difference between the current index level and target level, including forecast dividend yields when indicated, Sun said. On Tuesday, the benchmark Shanghai Composite Index opened lower at 2,054.53 points, down 0.21 percent. The Hushen 300 Index opened at 2,179.92 points, down 0.25 percent.