Friday, March 12, 2010

Time to hold your nose and jump into China???

The China market stinks of government induced economic growth. Since November 2008 I have been highly skeptical of the ability of the world's biggest exporter to sustain economic growth in the face of major declines in import in advanced economies. I was even skeptical that the China stimulus would even be able to solve their problems temporarily. Yet once again I have been proven wrong and see an undeniable trend...

"Chinese exports jumped 46% y/y in February 2010 to US$94.5 billion, after a 21% y/y gain in January. The move suggests that China’s export recovery continues, supported by global demand, but the pace of growth has slowed on a seasonally adjusted basis in early 2010. The 45% y/y climb in imports, reflects in part the revival of the processing trade in which components are imported for re-export as well as the sharp increase in commodity prices."

At the beginning of 2009 exports from China had dropped 20% yoy. With stimulus, exports jumped 45% from 2009 levels but that equates to a 16% increase over 2008 levels. That just returns the country to the growth course it assumed before the crisis began (approximately 7.8% annually).

So is it time to go long China? Probably not. There has been so much positive feedback to the people who have been holding shares of Chinese companies it is hard to see new buyers coming. That said, there has been very little decrease in the stimulative monetary policies of the Chinese government.

As noted in my previous post, oil consumption points to increased economic growth and more upside to the market. But I am not convinced. Nor am I adventurous enough to wade in treacherous waters. I may be missing a huge opportunity, but a penny saved is a penny earned.


Mike said...

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China is still on track.