The Concerns/Worries Swirling Around China Are Misunderstood
Concern/Worries around China’s slowdown and market volatility are misunderstood for the most part by many market participants and traders.
Panic selling seen across EMs (emerging markets) in late August can be described in its simplest terms as a re-balancing of China’s economic model. The trigger was global anxiety around the Purchasing Managers Index (PMI) falling below 50, which by some investors’ interpretation is recessionary. In that context, a correction of China’s commodities and manufacturing driven market was a long time coming, dramatic as it appeared.
What was unexpected among participants was how China’s economic indicators would have “knock-on” effects on global markets. But, when put into context, people acan begin to appreciate what participants will learn to accept as the truth about China.
The Chinese economy has grown almost 10X since the turn of the 21st Century.
In the past 15 years China’s GDP has grown from $1-T to $9-T, overtaking the combined GDP’s of the United Kingdom, Germany and France, placing it 2nd only to the world’s largest economy, the United States.
That being the case it is very clear the kind of impact China can have on global markets. Even if you do not buy stock in China, people need to have a clear view of China.
The savvy participants are not Bearish about China, as now is the time to be Bullish. As, there is still lots of mid to long term growth in China, but it will be found in sectors that represent its future as a technology and service-led economy, and not the heavy industry and commodities-led market of the past.
This future of China is not well reflected in stock market indexes which look backward and not forward. The recent Fibo retracement in the market do not really tell you what is happening in the real Chinese economy.
Now there are lots new regulatory policies including fiscal and monetary stimulus, reinforced by proclamations of commitment towards liberalization and restructuring. These beckon for FDI (foreign direct investment) and expansion of capital markets.
China has US$3.5-T of reserves, the highest in the world, and policy tools that can outreach those of the US Fed and the European Central Bank (ECB) in their respective markets.
So, be assured that in China’s economic ecosystem, the nation is well placed to stay the course.
There will always be the possibility of short term volatility, but, the medium term prospects remain very positive for participants who recognize growth areas and capture them through thematic and stock-specific strategies.
In my experience of nearly 20 years observing the Asian markets, it is know that every correction is a great buying opportunity, so when the focus goes to the companies with real competitive edge in the right sectors the growth will be rewarding.
Participants should focus on sustainable growth.
Investing in sectors that will continue growing in the long term future of China, like healthcare, care for the ageing population and environmental protection. The investor focus should be on buying strong companies in the right sectors and not on the highly publicized and discussed GDP growth numbers.
I spent 4 years working in China and I believe that world will adjust to this new view of China, just as it did to the old view.
China’s economy may not grow at 7 to 8% annually like it used to, but at 5 ti 6% is way better than most. To participants wishing to tap into the still-growing Asian markets prudence says to invest in Asian companies and only talk with people who understands each country’s unique dynamics.
As for trader/speculators (day traders) that action is gambling, not investing.
Have a terrific week.
Paul Ebeling
HeffX-LTN
The post The Concerns/Worries Swirling Around China Are Misunderstood appeared first on Live Trading News.