Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21
Work From Home £10,000 Office Tour – Workspace + Desk Setup 2021 Top Tips - 12th Jan 21
Collect a Bitcoin Dividend Without Owning the King of Cryptos - 12th Jan 21
The BAN Hotlist trade setups show incredible success at the start of 2021, learn how you can too! - 12th Jan 21
Stocks, Bitcoin, Gold – How Much Are They Worth? - 12th Jan 21
SPX Short-term Top Imminent - 12th Jan 21
Is This The Most Exciting Oil Play Of 2021? - 12th Jan 21
Why 2021 Will Be the Year Self-Driving Cars Go Mainstream - 11th Jan 21
Gold Began 2021 With a Bang, Only to Plunge - 11th Jan 21
How to Test Your GPU Temperatures - Running Too Hot - GTX 1650 - Overclockers UK - 11th Jan 21
Life Lesson - The Early Bird Catches the Worm - 11th Jan 21
Precious Metals rally early in 2021 - 11th Jan 21
The Most Exciting Oil Stock For 2021 - 11th Jan 21
Financial Market Forecasts 2021: Navigation in Uncharted Waters - 10th Jan 21
An Urgent Message to All Conservatives, Right-Wingers and Patriots - 10th Jan 21
Despite Signs to the Contrary, Gold Price at or Near Top - 10th Jan 21 -
Ultimate Guide On The 6 Basic Types Of Index Funds - 10th Jan 21
Getting Vaccinated at TESCO - Covid-19 Vaccinations at UK Supermarket Pharmacies and Chemists - 10th Jan 21
Cheers for the 2021 Stock Market and These "Great Expectations" - 9th Jan 21
How to Plan Your Child With Better Education - 9th Jan 21
How To Find The Best Casino - 9th Jan 21
Gold Is Still a Bargain Buy - 8th Jan 20
Gold Price Set to Soar as Hyperinflation Looms - 8th Jan 21
Have Big Dreams? Here's How to Pay for Them - 8th Jan 21
Will the Fed Support Gold Prices in 2021? - 8th Jan 21
Stocks trading strategies for beginners - 8th Jan 21
Who is Buying and Selling Stocks in 2021 - 8th Jan 21
Clap for NHS Heroes 2021 as Incompetent Government Loses Control of Virus Again! - 8th Jan 21
Ultimate Gaming and Home Working PC System Build 2021 - 5950X, RTX 3080, Asus MB - Scan Computers UK - 7th Jan 21
Inflation the bug-bear looking forward through 2021 - 7th Jan 21
ESG ETF Investing Flows Drive Clean Energy to Fresh Highs - 7th Jan 21
5 Financial Market Surprises in 2021 - 7th Jan 21
Time to ‘Reset’ Your Investment Portfolio in 2021? - 7th Jan 21
Bitcoin Price Collapses almost 20% at the start 2021 - 7th Jan 21
Fed Taper Nervous Breakdown - 6th Jan 21
What Will the U.S. Dollar Ring in for 2021? - 6th Jan 21
Stock market frenzy- Ride the bandwagon but be sure to take along some gold coins - 6th Jan 21
Overclockers UK Custom Build Gaming System Review Heat Test and Final Conclusion - 6th Jan 21
Precious Metals Resuming Bull Market, Gold, Silver, GDX Trend Forecasts 2021 - 5th Jan 21
Trump’s Iran-COVID-Gate Anniversary  - 5th Jan 21
2021 May Be A Good Year For The Cannabis / Marijuana Sector - 5th Jan 21
Stock Market Approaching an Important Target - 5th Jan 21
Consumer Prices Are Not Reflecting Higher Inflation; Neither Is The CRB - 5th Jan 21
NEW UK Coronavirus PANIC FULL Lockdown Imminent, All Schools to Close! GCSE Exams Cancelled! - 4th Jan 21
The Year the World Fell Down the Rabbit Hole - 4th Jan 21
A Year Like No Other for Precious Metals… and Everything Else - 4th Jan 21
The Stocks Bull Market is Only Half Completed - 4th Jan 21
An In- Depth Look At Gold Price Trend - 4th Jan 21
Building America Back After a Dark Covid Winter - 4th Jan 21
America's Dark Covid Winter Ahead - 4th Jan 21
Buy a Landrover Discovery Sport in 2021? 3 Year Driving Review - 3rd Jan 21
Stock Market Major Peak in Early April 2021 - 3rd Jan 21
Travel and Holidays 2021 - Flight Knight Cabin Bag Review - 3rd Jan 21
�� Happy New Year 2021 Fireworks and Drone Light Show from London and Sheffied - BBC�� - 2nd Jan 2
The Next IMMINENT Global Catastrophe After Coronavirus - 1st Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Why China’s Economy Will Exceed Expectations in the Second Half of 2010

Stock-Markets / China Stocks Jul 20, 2010 - 05:31 AM GMT

By: Money_Morning


Best Financial Markets Analysis ArticleLarry D. Spears writes: The rapid growth China's economy experienced in the first half of the year was a blessing and a curse. It helped propel the world out of a disastrous recession, but it forced policymakers into action to prevent overheating - which scared off many investors.

But the fact is that while most of the world was struggling to keep the engine of economic recovery from sputtering to a halt, China spent the first half of 2010 with its foot on the brake. And now that the Red Dragon has reigned in growth, the second half of 2010 will likely look very different from the first.

Money Morning Chief Investment Strategist Keith Fitz-Gerald says nearly everyone felt the first quarter's 11.9% growth in Chinese gross domestic product (GDP) was "too hot." But the 10.3% growth China saw in the second quarter will likely be topped in the second half.

The reasons for that are simple:

•Exports remain strong.
•Chinese stocks are oversold.
•China's property market isn't the ticking time bomb many analysts believe it is.
•And policies implemented to cool growth in the first half of the year will likely be relaxed in the next six months.
"From an investment perspective, the single biggest concern right now is how hard and for how long the Chinese government will keep tapping on the brakes," says Fitz-Gerald. "I personally don't think it's going to be too much longer - an easing sometime in the third quarter now seems realistic."

The Red Dragon's Real Estate "Problem"
China's government is making progress in reducing the explosive rate of construction growth and property speculation, especially in the housing sector.

After real estate investment accounted for 12.8% of China's GDP in 2009 - and 22.1% of all fixed-asset investment - Beijing decided to clamp down this spring, implementing new restrictions affecting loans, land sales and permits for new construction, as well as proposing a plan to gradually introduce property taxes.

As a result, nationwide property sales in June declined for the second straight month in volume terms, with the floor area of buildings sold down 3.1% from a year earlier, following a 3.4% drop in May, according to China's statistics bureau.

That should ease concerns among global investors about the impact of overbuilding - an issue Fitz-Gerald contends was overblown to begin with.

"China has historically built well in advance of what it's going to need, and most of the reports of empty buildings standing around have been confined to three areas - Beijing, Shanghai and Hong Kong - where future growth is expected to be most dramatic," he said.

Those areas are also where the recent restrictions have had the largest impact, with both Beijing and Shanghai reporting sharp declines in sales.

Analysts also frequently overlook one other critical point regarding China's real estate situation, according to Fitz-Gerald.

"Chinese law requires that, once you buy a piece of property, you must build on it within 18 to 24 months. They don't allow 'land banking' like we have here in the United States," he says. "As a result, developers who want to lock up land will buy it, throw up a garbage building and let it sit empty so as to avoid being taxed at higher occupancy rates until they're ready to build what they actually want. Empty buildings there don't necessarily equate to a lack of demand."

What's more is that the real estate restrictions are likely to be short-lived. The Ministry of Housing and Urban-Rural Development in May signed an agreement with local and provincial governments to fund construction of 5.8 million new affordable housing units and renovate another 1.2 million homes.

Also helping support the construction industry is a new government program to rebuild the earthquake-ravaged provinces of Sichuan, Gansu and Shaanxi. On May 14, the Ministry of Finance allocated more than $3.6 billion (24.8 billion yuan) for nearly 4,000 projects aimed at restoring municipal infrastructure and public services.

Additional money was allocated to ensure the funding of about $30 billion (200 billion yuan) worth of municipal bond requests filed with the National Development and Reform Commission (NDRC) since Jan. 1 - funding that had been delayed in the bid to slow economic growth. But now that a visible slowdown has been achieved, the funds are being released.

"The government doesn't want to see a bunch of unfinished projects," said Gao Huiqing, a member of the State Information Center Expert Committee. The municipal projects are thus being funded again, but "at a controlled pace."

Underestimating Exports
Real estate and construction aren't the only sectors that will surprise analysts in the second half of the year, either. China's export sector, still the backbone of the country's economy, remains strong.

Despite concerns that Europe's sovereign debt woes and America's wavering recovery would trigger the second trough of a double-dip global recession, dimming China's foreign business prospects, exports have continued to grow. China's total imports were up 34.1% from a year earlier in June, while exports climbed by 43.9%, taking the country's trade surplus to a record high $20 billion.

The rising demand also has many companies in China operating at full capacity, meaning they're now under renewed pressure to grow. For example, Caterpillar (NYSE: CAT), the world's leading supplier of construction and mining machinery, says it is operating at 100% in all its Chinese facilities.

Rather than being encouraged by the export numbers, some analysts expressed concern they might rekindle inflationary fires, but China's consumer price index actually fell to 2.9% in June from 3.1% in May.

"The thing with inflation is that you have to keep it in perspective," said Fitz-Gerald. "China's economy is growing at an annual rate of around 10%, so inflation of 3% is no big deal - unlike here (in the United States), where we're growing at just 2% or so a year and non-government sources estimate real inflation is running around 9%."

Of course, the fact that analysts have continually underestimated the Red Dragon's stability has left investors with a tremendous opportunity.

Stocks Set to Surge
Indeed, Chinese stocks are poised for a big rebound in the third quarter. The Shanghai Composite Index has dropped 17% in the past three months, and the CSI 300 has lost more than 25% of its value.

But consider this: From 2004 through 2009, the CSI 300 had five major declines. If you exclude the global collapse in 2008, the other four "internal corrections" have averaged 27.5% over an average time period of 88 days. The current pullback has already exceeded the 88-day mark, and the loss is close to the past average.

Given those numbers, Fitz-Gerald recommends that you "double your exposure to China for the second half of the year" - but with a couple of caveats.

"Chinese stocks are definitely going to be fairly volatile in the coming months," he warns, "if only because the markets are still relatively immature and the government is going to keep a very careful watch on them to keep growth in check. However, there will be plenty of bullish pressure on prices because the money that's been targeting real estate speculation - now blocked by the government restrictions - will be channeled into stocks."

The market also could get a boost from an easing of the European debt situation and a rebound in the value of the euro, which has fallen precipitously.

However, Fitz-Gerald cautions against placing too much emphasis on China's import-export numbers, which he says will likely remain "tepid" simply because trade balances have become more of a political than an economic issue.

"The more the West pressures Beijing to increase imports and cut exports," he says, "the more China is going to resist."

Investing in China
If you want to trade a potential second-half upturn in Chinese fortunes there are a variety of options.

Some Chinese stocks that trade on U.S. exchanges are worth a look given the potential resurgence in construction and newly authorized spending on public services.

•Anhui Conch Cement (OTC: AHCHY), recent price: $15.15 - This stock is very thinly traded here in the United States, but it's a good candidate for two reasons. It is China's largest cement producer, having dominated the coastal building markets for years. And its share price has been halved in the recent correction. Fundamental info is scant on most U.S. market websites and, once again, it's very thinly traded, so buy only with limit orders.
•Yingli Green Energy Holding Co. Ltd. (NYSE: YGE), recent price $11.75 - Recommended a number of times in past Money Morning and Money Map Report issues, Yingli is China's only fully "green" energy company, engaged in the design, manufacturing and installation of photovoltaic (PV) products for solar power and telecommunications systems. The stock has been range-bound for the last few months, but renewed municipal infrastructure spending could spike demand - and turn last year's loss into a healthy 2010 profit.
•Another potential winner in the second half, if oil prices climb as expected, is China Petroleum & Chemical Corp. (NYSE: SNP), recent price $77.18. Also known as Sinopac, the company engages in the exploration, development and production of crude oil and natural gas; refining, transportation, storage and marketing of petroleum products; and the production and sale of chemicals, including basic organic chemicals, monomers and polymers for synthetic fiber, synthetic resin, synthetic rubber and chemical fertilizers. It also owns and operates oil depots and service stations. The stock's current price/earnings (P/E) ratio is just 7.39, and it pays a dividend of $1.80 a share.

For those who prefer the balance and stability offered by exchange-traded funds (ETFs) to direct stock investments, a couple of potential choices are:

•Morgan Stanley China A Shares Fund (NYSE: CAF), recent price: $26.75 - This closed-end fund, which has recently been trading at a slight discount to net asset value (NAV), is the only fund focusing on Chinese A shares that's currently open to U.S. investors. It's also one of the best ways to diversify across a major slice of the Chinese economy, with a recent portfolio allocation of 28% in consumer goods and services, 26% in financials and 18% in basic materials. It also holds shares in companies that make auto components and beverages, among other products, and has numerous stocks in the metals and mining sectors. CAF pulled back 37% from a 52-week high of $37.44 in the recent correction, but bottomed at $23.51 in late May and has eased steadily higher since.
•iShares FTSE Xinhua 25 index (NYSE: FXI), recent price: $38.95 - This exchange-traded fund (ETF) seeks to mirror the price and yield performance of the underlying index, which tracks 25 of China's largest and most liquid companies. At least 90% of the fund's $8.1 billion in assets is invested in either the actual Chinese shares or depositary receipts representing those securities. The recent P/E of the shares is 14 and the fund has a dividend yield of 1.4%.

Source :

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - 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