"There is nothing like returning to a place that remains unchanged to find the ways in which you yourself have altered." - Nelson Mandela
Chinese stocks have been a major disappointment for investors over the past several years, with many now reaching March 2009 lows. The reasons for bearishness on China are well known, and it appears that even within China various fiscal and monetary authorities are growing more concerned over growth going forward. Earlier this year, China put in a GDP growth target of 7.5%, and it appears that we are now below that mandate. However, a turn may be in the making as chatter grows of coming fiscal and monetary action to come, coinciding with the European Central Bank stepping in more aggressively to counter the current Spain scare.
Take a look below at the price ratio of the iShares FTSE China 25 ETF (FXI) relative to the S&P 500 (IVV). As a reminder, a rising price ratio means the numerator/FXI is outperforming (up more/down less) the denominator/IVV.
(Click to enlarge)
Notice that the price ratio of China to the U.S. is now at a 3 year low, and that a potential base appears to be forming. Much of this may be related to the idea that actions will be taken to spur growth, and that overall weakness on a relative basis is washed out. More so than that though would be the implication of leadership on global risk sentiment. Given depressed levels in Chinese shares and dividend yields which are attractive, any kind of meaningful turn could be an interesting long opportunity for those who prefer equities over bonds at this point in the investment cycle, and are looking for stocks which can rally harder.
This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
