Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What UK CPI, RPI INFLATION Forecasts for General Election Result 2019 - 11th Dec 19
Gold ETF Holdings Surge… But Do They Actually Hold Gold? - 11th Dec 19
Gold, Silver Reversals, Lower Prices and Our Precious Profits - 11th Dec 19
Opinion Pollsters, YouGov MRP General Election 2019 Result Seats Forecast - 11th Dec 19
UK General Election Tory and Labour Marginal Seats Analysis, Implied Forecast 2019 - 11th Dec 19
UK General Election 2019 - Tory Seats Forecast Based on GDP Growth - 11th Dec 19
YouGov's MRP Poll Final Tory Seats Forecast Revised Down From 359 to 338, Possibly Lower? - 10th Dec 19
What UK Economy (Average Earnings) Predicts for General Election Results 2019 - 10th Dec 19
Labour vs Tory Manifesto's UK General Election Parliamentary Seats Forecast 2019 - 10th Dec 19
Lumber is about to rally and how to play it with this ETF - 10th Dec 19
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19

Market Oracle FREE Newsletter

UK General Election Forecast 2019

The Great Fall of China

Economics / China Economy Jan 23, 2009 - 06:02 AM GMT

By: Q1_Publishing

Economics Best Financial Markets Analysis ArticleEarlier today, China announced its economy grew at a 6.8% in Q4. This is not very good news at all. China's GDP growth is inching perilously close to 6% economic growth. Which is viewed as the minimum to keep the lights on. It's a critical level the world is watching closely.


Say what you want about the validity of China's “official” numbers, but it's bad and it's probably going to get worse. As you can see in the table below, the downtrend is still accelerating.

China's Quarterly GDP Growth Rate
Time Period Q4 -2007 Q1 - 2008 Q2 – 2008 Q3 – 2008 Q4 - 2008
GDP Growth Rate 11.2% 10.6% 10.1% 9% 6.8%
Increase (Decline) -- (0.6%) (0.5%) (1.1%) (2.2%)

 

The U.S. is Sneezing…

At this rate, China is on its way to a full-blown crisis. As we looked at a few months ago when the first wave of manufacturer shutdowns in China swept through the country, there would be a lot more to come. After all, about 1/3 rd of China's economy comes from production, manufacturing, and exports and about 1/3 rd comes from expanding export and production capacity.

That's why China's economy takes a double hit during tough times. When toy factories are shutting down, the economy loses the jobs. Of course, there's no need for new toy factories either, so the production expansion sector of its economy gets hit too.

The old saying, “when the U.S. sneezes, the rest of the world catches a cold,” certainly seems to be proven in China. China Daily estimates, “A drop of 1 percentage point in the economic growth of the US and Europe would send the Chinese exports falling by 4.75 percent, and the exports of electronics and textiles down by 0.5 percent respectively.”

Now, we're starting to see the impact on GDP growth. Of course, the quickest way to get China back on track is to get exports rolling again. As we saw a few weeks ago, that's not going to happen anytime soon. That's when China announced its exports fell the fastest in over a decade.

This is the first time China has had to deal with all three of its top customers – U.S., Europe, and Japan - being in recessions.

What does this mean for China stocks?

Well…since November, there's still a lot of interest in China stocks. It's pretty tough to make a case against the long-term opportunities in China. The country's economy is showing signs of change. For instance, last month retail sales increased more than 17%. So internal demand is growing, but it's got a long way to go. The short-term outlook, however, isn't very strong at all.

One indicator I look at is the volatility component of long-term options on the iShares FTSE/Xinhua China 25 Index ETF (NYSE:FXI) which tracks 25 of the largest publicly traded Chinese companies. The volatility on the FXI is the equivalent of the VIX (CBOE Volatility Index, or “Fear Index”, for the S&P 500). Although it has a bigger exposure to mining and energy stocks than the S&P 500, it's the closest thing to a “China VIX” as you're going to find.

The VIX is basically a way to value the cost of downside protection. It's the cost of insurance. When the market is falling, the VIX goes up and vice versa. Today, the China VIX ticked up to 80 (for the January 2010 FXI 25 Put option). Compare that to the S&P 500 VIX of 50 and it shows there's still some strong demand for “insurance” against Chinese stocks, but it's not near crisis or panic levels.

Combine a steadily declining economy, and growing fear, and it'd be a pretty safe bet there will be an opportunity to “buy China” down the line at a noticeably better price. We'll keep you posted in our 100% Free e-Letter, the Prosperity Dispatch . Remember, China's economy is built for booms and no one knows how well it's going to fare during a downturn. So far, it hasn't fared well at all.

Good investing,

Andrew Mickey
Chief Investment Strategist, Q1 Publishing

Q1 Publishing is committed to providing investors with well-researched, level-headed, no-nonsense, analysis and investment advice that will allow you to secure enduring wealth and independence.

© 2009 Copyright Q1 Publishing - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Q1 Publishing Archive

© 2005-2019 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

6 Critical Money Making Rules