The outlook for China has been overshadowed by the concern of inflation. The government has been tightening reserve requirements for banks on real estate loans and keeping a close watch on lending overall by banks. On December 25 they raised lending rates to curb demand. Thus, the concern is they will stall the growth of their economy and the stock market.
Manufacturing data for China was lower last week as a result of the efforts to curtail growth. This prompted the Chinese government to claim victory over fighting inflation. Time will tell if they are victorious as one month of data does not create a trend or a victory. The challenge of inflation is still an issue facing the Chinese economy.
That said, the outlook for China remains optimistic. Even if growth slows to 5% or 6% that is positive for economic growth. The chart below of the SPDR S&P China ETF (GXC) shows the lateral movement over the last 15-plus months. The uptrend line (orange) off the May low was broken in December. The challenge for China has been concern relative to the government doing too much to stem growth and thus stalling the economy. So far the stall has not materialized and the slowing has been successful. What does that mean for investors? I see an opportunity for growth in price short term.
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The ETF broke the short term downtrend off the November high and the momentum has picked up the last week in the fund. This is not a clear buy signal, but it is worth putting it on our watch list to define an entry point should the upside continue. Even if this only pans out as a trade (0-13 week holding period) it could result in an 8-10% gain.
The ripple effect of China gains short term momentum will help Asian markets overall. Japan (EWJ) has been in a solid uptrend off the May/June lows. Hong Kong (EWH) pulled back with China and the chart looks similar. EWH did hold support at the $18.50 level and has bounced along with GXC. Singapore (EWS) found support at $13.20 and is moving back toward the November high as well. The region is worth putting on your watch list and planning a defined entry, exit and target for any positions taken.
Disclosure Statement: Jim Farrish is the Founder and Editor of SectorExchange.com and TheETFexchange.com as well as the CEO of Money Strategies, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. Investors who are interested in money management services may visit the Money Strategies, Inc., web site.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.