Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19
Is the Stock Market Making a V-shaped Recovery? - 11th Aug 19
Precious Metals and Stocks VIX Are About To Pull A “Crazy Ivan” - 11th Aug 19
Social Media Civil War - 11th Aug 19
Gold and the Bond Yield Continuum - 11th Aug 19
Traders: Which Markets Should You Trade? - 11th Aug 19
US Corporate Debt Is at Risk of a Flash Crash - 10th Aug 19
EURODOLLAR futures above 2016 highs: FED to cut over 100 bps quickly - 10th Aug 19
Market’s flight-to-safety: Should You Buy Stocks Now? - 10th Aug 19
The Cold, Hard Math Tells Netflix Stock Could Crash 70% - 10th Aug 19
Our Custom Index Charts Suggest Stock Markets Are In For A Wild Ride - 9th Aug 19
Bitcoin Price Triggers Ahead - 9th Aug 19
Walmart Is Coming for Amazon - 9th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

China’s Stock Market Finally Looks Like A Buy

Stock-Markets / Chinese Stock Market Jul 26, 2014 - 01:59 PM GMT

By: Sy_Harding

Stock-Markets

Is China’s economy, the second largest in the world, a disaster coming down to a hard landing, which has been the popular forecast for four or five years now? Or is it merely slowing from unsustainable double-digit growth of more than 12% a few years ago, to a more reasonable and sustainable pace?

This week the International Monetary Fund cut its forecast for China’s 2014 economic growth to 7.4% from its 7.5% forecast in April.


At the same time, it cut its forecast for overall global growth in 2014 to 3.4%, and for 2014 growth for the U.S. economy to just 1.7% from its forecast of 2.8% three months ago.

Iinvestor concerns are that the twin bubbles in China’s real estate market and the nation’s credit structure, and its underdeveloped financial markets, will result in a hard landing for its economy. Those concerns have had China’s stock market in a long bear market in which it has declined 65% since its peak in 2007, and 39% from its peak in 2009.

As a result, the Shanghai Composite is selling at just 7.9 times 12-month projected earnings, down from its 5-year average P/E ratio of 11.3. Meanwhile, in the U.S. the S&P 500 has been in a powerful bull market since 2009, which has it selling at 18 times projected earnings.

Those are interesting comparisons. An economy projected to grow 7.4% in 2014 has a stock market plunged to a five-year low and selling at only 7.9 times earnings, while an economy projected to slow to 1.7% growth has its stock market at a five-year high, and selling at 18 times projected earnings.

Perhaps it is justified.

Sentiment for the U.S. economy and market is at high bullish levels of bullishness and complacency, even though the U.S. Fed is cutting back its stimulus. Sentiment for China’s economy and stock market remains negative in spite of aggressive moves by China’s government to protect and re-stimulate its economy, and impressive economic reports in recent months that indicate the moves are working.

China has been spending aggressively on the nation’s infrastructure to produce jobs. It cut reserve requirements for banks. In March, it issued rules allowing banks to sell preferred stock, providing another avenue for banks to raise their capital to healthier levels. This week it ruled that China’s banks can roll loans for “qualified” companies facing liquidity problems over into new loans, to avoid defaults.

On the economy, early this month China reported its third-largest quarterly trade surplus on record.

This week HSBC reported that its flash China PMI Mfg Index rose to 52 in July from 50.7 in June, and 49.4 in May. Within the index; new orders, new export orders, backlogs, employment, and prices all improved. It was the most positive PMI report since early 2013.

However, Norman Chan, investment director at NAB Private Wealth Advisory says, “Sentiment on China is so negative that every piece of good news is treated as the glass being half empty.”

Alastair Chan, an economist at Moody’s Analytics, says the big challenge for China will be to control what has been runaway property price inflation without deflating the market and sparking a significant economic downturn.

That has been the main concern for the last five years.

However, there are more positive voices showing up lately.

Dai Ming, at Hengsheng Hongding Asset Management in Shanghai, says, “There’s a consensus growing that China’s economy can stabilize.”

Peter Sartori, head of San Equities at Nikko Asset Ltd in Singapore, said in an interview with Bloomberg, “We have been underweight the Chinese banks for many years. The time is right to reassess. China’s banks have stopped underperforming - but there will have to be more reforms in China for banks to start outperforming.”

Mark Mobius, well-known chairman of Templeton Emerging Markets Group, says the new rally in China “is sustainable because of the incredible amount of money available for the market. Banks are sitting on a lot of fuel to add to the fire.” He projects a further gain of 20% for China’s stock market.

Meanwhile, the consensus of our technical indicators triggered a buy signal on China, and the Shanghai Index has broken out above its long-term 200-day m.a., and through the trendline resistance that stopped all its rallies of the last several years.

Mark Mobius, well-known chairman of Templeton Emerging Markets Group, says the new rally in China “is sustainable because of the incredible amount of money available for the market. Banks are sitting on a lot of fuel to add to the fire.” He projects a further gain of 20% for China’s stock market.

Meanwhile, the consensus of our technical indicators triggered a buy signal on China, and the Shanghai Index has broken out above its long-term 200-day m.a., and through the trendline resistance that stopped all its rallies of the last several years.

It’s interesting that Bloomberg reports that since the advance began investors pulled $700 million out of U.S. ETF’s tracking China’s market. Could that be another example of investors pulling money out of markets after bear markets have ended and new bull markets have begun? My column last week showed how investors held all the way through the 2007-2009 bear market in the U.S., and only pulled money out after it ended (and continued to do so through 2010, 2011, and 2012).

We believe our technical buy signal is supported by China’s improving economic fundamentals.

Given the valuation levels and risk in the U.S. market, there is also an attraction to a market that has so clearly demonstrated an ability to move independent of the U.S. market.

In the interest of full disclosure, my subscribers and I have a position in the SPDR S&P 500 China ETF, symbol GXC.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2014 Copyright Sy Harding- 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.

Sy Harding 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