The willingness of Greek leadership to throw salt into the wounds of the global financial system is the only thing on Mr. Market’s mind. It follows that the ongoing European debt crisis continues to steal all of the headline space.
Yet there are a number of economic data points that investors should not gloss over. For instance, China’s Purchasing Manufacturing Index fell to 50.4 in October from 51.2 in September. The lower number suggests that China’s economy has slowed down… cooling off enough that the mainland will soon initate monetary and/or fiscal stimulus.
Although inflation in China is still “higher-than-desired,” it has decreased from 6.5% in July to 6.1% in September. In fact, the trend of slower GDP growth (9.1% in Q3) and declining inflation gives Chinese policymakers a green light for lowering interest rates and/or loosening bank reserve requirements. Even if leaders choose to wait several more months, they may still announce that they’ve completed their tightening campaign.
Not sure if China ETFs can buck the trend? Near the end of Tuesday’s miserable session, here are the particulars:
|Developed World Worries About Greece While “China” Hangs In|
|iShares MSCI Hong Kong (EWH)||1.0%|
|iShares MSCI Taiwan (EWT)||-0.7%|
|SPDR S&P China (GXC)||-1.4%|
In fact, there’s more to the eventual stimulus story in Asia than the China PMI data. For example, The Reserve Bank of Australia reduced its target lending rate from 4.75% to 4.5% today — a rate reduction for the first time since April of 2009. The reason? Australian authorities believe that Asia trade is slowing on reduced demand from Europe.
Granted, a glass-half-empty investor may only see the decrease in trade between China and its partners. Yet stock markets are forward-looking; China and Asia have underperformed world equities because tighter monetary/tighter fiscal policy had a hand in cooling down the white hot economies.
Now, however, Australia, South Korea and eventually China and India will find themselves signing on for a “great stimulus.” They have the money; they have the conviction. And struggling China stock assets over the last year-and-a-half will rocket to the the top of performance charts.
I’ve been adding to S&P SPDR China (GXC) over the last few weeks… and may continue to do so. Technically, it has crossed above a 50-day intermediate-term moving average. Fundamentally, a trailing P/E of 8.6 is an exceptionally attractive valuation for corporations that collectively produce double-digit earnings growth.
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Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.