Overnight there was a huge sell-off in China with CSI 300 Index down around 4.96%. But I don't think it should affect US equities badly because what we are seeing in China is exactly what some analysts and investors including myself fear about governments' intervention in free markets. Money that China's government was providing in the form of stimulus was directly getting plowed into the Chinese stock market and Chinese real estate market. That is why we were noticing the steepest rise in CSI 300 index and ofcourse China's GDP soaring (because of real estate demand). But that is exactly how bubbles get created. What happens is that the last person in (who normally has to be the most leveraged also) will try to be the first person out. And then the chain reaction triggers.
But I think US equities have not seen such a huge flow of stimulus money directly flowing into the stock market. So any sell off reaction triggered by China should only see a muted response in US markets, if any. I think US will soon be grappling with a different problem if lawmakers don't take prudent measures immediately after economy is seen somewhat stabilized. US dollar is under huge pressure and any slack from government to rein in the supply will have the consequences of huge dollar devaluation. In any case, all these arguments point commodities stocks and mining sector as the huge beneficiary. I have had a buy rating on some of the stocks in metals sector (NYSEARCA:UYM) and am adding them to portfolio.
Other stocks that I think are a good buy specially after their recent pullback are the solar sector stocks (NYSEARCA:TAN). Renewable energy is the future, there is absolutely no doubt about that. The best stock in that sector is First Solar (NASDAQ:FSLR). With around $600 million debt and debt/equity ration of 0.12, I think this company has lower debt levels than its peers. With stock almost 30% down from its recent highs of $175, its a great buy. The reason its stock is being hammered is because other analysts believe that the company can not maintain its growth rate.
I disagree with that. I think those analysts don't realize that solar industry is still in its nascent state. There are ample growth opportunities for companies which are technology leaders in this area as First Solar (FSLR). The recent agreement between First Solar and Southern California Electric for a 550 megawatt solar plant is a clear indication that solar industry is growing and Chinese manufacturers are not as big a threat in this area as others want us to believe. And with analysts expectations already down, FSLR can beat them with a huge positive move in the next quarters. I have always maintained a portfolio with stocks for future growth and not with the past glory. Metal, mining and solar are the stocks for future growth. I would rate them a buy.
Disclosure: Increasing exposure in the sectors discussed here. No position as of now in FSLR.