Comparing Stock Returns To Precious Metals, China [Podcast]

by: Gary Gordon

Don’t say that I didn’t tell you so, but China has been skillfully engineering a soft landing for its economy. The most recent data show that China’s consumer price inflation tumbled to a 20-month low of 3.2%. And inflation in food costs declined even more rapidly.

Why is this important? In essence, China had been looking to get inflation under 4% before enacting more economic stimulus. Now, with inflation coming under control, policy makers will have even more discretion to cut interest rates or ease other regulations that inhibit economic progress.

“Hard landing” bears have completely missed on the success of China’s monetary and fiscal programs. Not sure? For all of the talk about economic progress in the U.S., the U.S. economy is growing at 1/3 the clip of the world’s 2nd largest economy. During the phenomenal stock rally off of the October lows, SPDR S&P China (NYSEARCA:GXC) has rocketed 35% to the S&P 500 SPDR Trust’s (NYSEARCA:SPY) 26%. Even from a fundamental value perspective, shares of Chinese corporations are far less expensive on a price-to-earnings (P/E) basis than the shares of U.S. corporations.

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In truth, there are a variety of ways to benefit from China’s improving fortunes. For instance, government intervention to enhance the well-being of its burgeoning middle class is likely to prop up the Global X China Consumer Fund (NYSEARCA:CHIQ). Similarly, China’s 5-year plan calls for a rare earth application rate of 70% in high-end manufacturing by 2015. While not a pure play on rare earth metals (NYSEARCA:REM), Market Vectors Rare Earth/Strategic Metals (NYSEARCA:REMX) ought to be a big time beneficiary.

Last, but hardly least, do not overlook the demand for precious metals. Every time that gold hits a snag, television personalities will predict the end of yellow brick road. On the flip side, as long as central banks around the world enact strategies to weaken fiat currencies – from the Fed to the ECB to the Bank of Japan – expect precious metals to work their way higher over time. Consider ETFS Physical Platinum (NYSEARCA:PPLT).

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.