Elliott Wave September 06, 2012 - Contrarian Forecaster Sees Start of Boom in China Gloom
China's stagnating property market and its debt-laden banks have doomed the nation's economy, says the conventional wisdom. Taking the opposite view, a U.S.-based financial forecaster says that the conventional wisdom's extreme pessimism makes China's stock market a buy.
The Atlanta-based forecaster, Mark Galasiewski of Elliott Wave International, presents just such an argument in the company's first-ever bilingual report in Chinese and English. In five pages of charts and text, the timely special report outlines the case for a multi-year bull market in Chinese stocks based on the following evidence:
The correction in the Shanghai Composite since its 2007 high has unfolded in a universal price pattern that has preceded the start of major bull markets in the past.
The Shanghai Composite may have fallen back toward its 2009 lows, but the mainly smaller, higher-growth companies listed on the Shenzhen Stock Exchange have in recent years shown excellent relative strength, much like the Nasdaq Composite Index did prior to the U.S. bull market of the 1980s. In particular, the Shenzhen Exchange's ChiNext Growth Enterprise Market Index is holding well above its January 2012 low.
Valuation measures, such as the record low Shanghai A-shares price/earnings ratio and the ratio of A-shares' dividend yield compared to the yield on Chinese government bonds, have fallen to levels that preceded the start of bull markets in China in 2005 and 2008.
China's consumer satisfaction index is plunging and the number of new accounts opened each week at Chinese stock brokerages has dried up in recent months. The declines in these sentiment indicators may indicate extreme pessimism near a major low in Chinese stocks.
The correction in the shares of China's largest property developer since its 2007 high has unfolded in a pattern that indicates that the recent slowdown in Chinese real estate is just a slump, not the start of a complete bust.
Galasiewski believes that China's stock market has arrived at a crucial turning point that has great significance for the future of China and the Asia-Pacific region. His research shows that most observers of financial markets fail to identify such turning points because they tend to adopt the conventional wisdom just as the trend is about to change. This report provides the framework and evidence that investors, journalists, academics and policy-makers need to see through the pessimistic headlines of the present to the opportunities that lie directly ahead in China.
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