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D Fry Market Outlook 05 06 2007
Forget it Jake -- it's Chinatown!

It looks by now investors have, and should have, isolated the goings-on in Shanghai and Shenzen markets from the rest of world indexes. The declines there have been dramatic as was the previous rise. With over twenty years of experience in dealing with Chinese investments, first indirectly through Hong Kong and later directly with B-shares, I've learned a lot. As investors they're extremely emotional in stock market dealings, and that's coming through in spades over the past six months.

An inspection of the CSI 300 Index below reflects the meteoric rise from 2000 at the beginning of 2007 to over 4000 in just 5 months. The index represents A-share stocks from both Shenzen and Shanghai Indexes. This, coupled with officials claiming one-third of these companies are "fundamentally unsound," and the furious speculating within China [over one million new accounts opened per week and anecdotal stories indicating citizens foregoing vacations to invest holiday money in stocks] reinforces these stories.

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The "tell" that there wouldn't be any contagion to other markets is the performance of Hong Kong's Hang Seng Index, which rose despite the big drop in the CSI 300.

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Meanwhile back in the real world, factory orders were up slightly and bond yields proved attractive as stocks were down early. But, "wonder of wonders," stocks came back to close on the plus side.

The advance/decline looked about as unchanged as index levels.

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Oil prices are back in a higher mode as folks fret about the onset of hurricane season and Russia's new found belligerence.

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A brief check around the globe shows more positive than negative action.

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We start Monday tentatively, but when bear's couldn't shove Shanghai down the throats of bulls, back up we went again.

The market can be undone by so many things, energy, hurricanes, terrorism and Greenspan chatter [?] just to name a few. In my mind I'm thinking gasoline at $4 might tick Chucky off, but then he gets used to new conditions and goes in attack mode, or "when the going gets tough, the tough go shopping." Just ask Chucky.

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Disclaimer: Among other issues, the ETF Digest maintains long or short positions in: iShares Trust FTSE-Xinhua China 25 Index Fund (NYSEARCA:FXI), PowerShares DB Energy Fund (NYSEARCA:DBE), streetTRACKS Gold Trust ETF (NYSEARCA:GLD), PowerShares DB US Dollar Index Bearish (NYSEARCA:UDN), PowerShares DB Commodity Index Tracking Fund (NYSEARCA:DBC), Rydex S&P Equal Weight Consumer Discretionary ETF (NYSEARCA:RCD), S&P 500 Index (NYSEARCA:SPY), MidCap SPDRs ETF (NYSEARCA:MDY), iShares Russell 2000 Index ETF (NYSEARCA:IWM), NASDAQ 100 Trust Shares ETF (QQQQ), First Trust DJ Internet Index ETF (NYSEARCA:FDN), iShares Goldman Sachs Network Index Fund (NYSEARCA:IGN), iShares MSCI EAFE Index Fund ETF (NYSEARCA:EFA), iShares MSCI Emerging Markets ETF (NYSEARCA:EEM), iShares S&P Latin America 40 Index Fund (NYSEARCA:ILF), iShares S&P Europe 350 (NYSEARCA:IEV), iShares MSCI Canada Index ETF (NYSEARCA:EWC), iShares MSCI South Korea Index Fund ETF (NYSEARCA:EWY), iShares MSCI Australia Index Fund (NYSEARCA:EWA), and iPath MSCI India ETN (NYSEARCA:INP).

Source: David Fry's Market Outlook for Tuesday