Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Investors Appreciating China to its Fullest

Stock-Markets / Chinese Stock Market Mar 13, 2012 - 04:32 AM GMT

By: Frank_Holmes

Stock-Markets

Best Financial Markets Analysis ArticleWine expert and social media guru Gary Vaynerchuk attributes his ability to detect subtleties in wine that others might not recognize because of his unique taste-testing as a teen. Because drinking wine was illegal, he says he tasted the flavors associated with wine instead. He not only ate fruits and vegetables, but also chewed on chunks of grass, dirt, tobacco and wood so he could learn to recognize the complex flavors that wine has to offer.


For investors, an appreciation of China requires a similar comprehensive analysis.

One significant subtlety that seems to be overlooked by investors today is China’s macro policy strategy. Professor Stephen Roach in the Financial Times thinks the country has been "doing a far better job in managing its economy than most give it credit." Its actions have been deliberate and purposeful, and, most important, successful. He points to measures that China enacted to lower food inflation, along with the numerous times the country raised required reserve ratios and policy interest rates as illustrations of China’s increasing “prowess” in stabilizing its economy.

The positive results of the government’s actions have a delayed effect, only to be detected a few months later. For example, the chart below shows how the food and non-food consumer price index (CPI) have declined on a year-over-year basis over the past several months. CPI is now at its lowest level since July 2010, says CLSA.

With inflation now under control, China is stocked with other possible monetary policy actions to help growth in 2012, as opposed to the central banks of the U.S., Europe and England, which have run empty. “They have followed the Bank of Japan and taken their short-term policy rates down to the zero bound,” Roach says.

Perhaps the sommeliers have become the students: Rather than the developed countries’ central banks providing directives to China on ways to grow its economy, maybe it should be the other way around. Roach says that China “offers some lessons in macro policy strategy that the rest of the world should heed.”

Roach concludes that “long focused on stability, [China] is more than willing to accept the short-term costs of a growth sacrifice to keep its development strategy on track.”

Jim Rogers has also identified many attractive nuances of China, which he believes China Bears are missing. When the legendary international investor was interviewed last week by Business Insider, he pointed to the country’s long history of “entrepreneurship [and] capitalism, they have the brains, they have the know-how” as reasons to be bullish.

Its likely China will experience setbacks as it grows, says Rogers. After centuries of decline, the country just recently experienced a rebirth when Deng Xiaoping led China toward a market economy in 1978. Growth is still in its early stages. However, each time China data appears slightly off, bears are quick to doubt Beijing’s ability to successfully navigate its economic terrain.

When Premier Wen Jiabao announced this week that the government’s targeted GDP growth was expected to be 7.5 percent, it wasn’t a surprise to seasoned China followers. Andy Rothman of CLSA says it was consistent with his expectations. Premier Wen’s message came as “neither a surprise nor a signal that the Communist Party believes growth is decelerating beyond what we had expected.” Rothman also doesn’t think Wen’s speech signaled additional stimulus either.

Sometimes a target is just a target: China’s GDP has always grown more than what was projected. Take a look at the chart below. The yellow line shows how China has conservatively set its target GDP growth for the past decade. Every year, actual GDP growth has been higher and much higher in some cases. For example, in 2007, while the government projected GDP to grow 8 percent, actual GDP growth came in much higher at 14 percent.

While most analysts don’t expect another moon shot rise in GDP this year, a 7.5 percent growth rate still exceeds most emerging economies and all developed nations. Advanced economy growth is expected to be meager, slowing from 1.6 percent to 1.3 percent in 2012, according to The Conference Board.

Since the new year, the MSCI China Index has risen about 11 percent. This increase comes after a 2011 decline of nearly 20 percent. However, last year’s sell off continues to provide bargain basement prices for some Chinese stocks, as the index is trading at an attractive price-to-earnings level, says Deutsche Bank. While the 10-year P/E has averaged 12.5 times, the 12-month forward price-to-earnings for the MSCI China index is currently at 9.1 times.

Deutsche Bank strategists say with “very healthy” GDP growth and moderate inflation, the “macro fundamentals should easily justify a further rerating of the forward P/E to 10.5 times” by the end of 2012. This valuation suggests that the MSCI China could increase 15 percent from its March 8 level, says Deutsche Bank.

For long-term investors learning to appreciate the finer points of the country, we believe China is somewhat like fine wine; it only gets better with age.

U.S. Global Investors, Inc. is an investment management firm specializing in gold, natural resources, emerging markets and global infrastructure opportunities around the world. The company, headquartered in San Antonio, Texas, manages 13 no-load mutual funds in the U.S. Global Investors fund family, as well as funds for international clients.

For more updates on global investing from Frank and the rest of the U.S. Global Investors team, follow us on Twitter at www.twitter.com/USFunds or like us on Facebook at www.facebook.com/USFunds. You can also watch exclusive videos on what our research overseas has turned up on our YouTube channel at www.youtube.com/USFunds.

By Frank Holmes

CEO and Chief Investment Officer

U.S. Global Investors

U.S. Global Investors, Inc. is an investment management firm specializing in gold, natural resources, emerging markets and global infrastructure opportunities around the world. The company, headquartered in San Antonio, Texas, manages 13 no-load mutual funds in the U.S. Global Investors fund family, as well as funds for international clients.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining. The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.

Frank Holmes Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in