China Stock Market Up On Positive Signs Of Growth
About: China ADR Index, Treasury Secretary Tim Geithner, Chinese President Hu Jintao, Shanghai Composite Index, International Monetary Fund, Chinese equities, Jim Trippon, China's equity markets
Chief among those fears was the worry that trading relations between China and the U.S. would reach a crisis point as U.S. lawmakers called on China to be labeled a currency manipulator. As we predicted last week, Treasury Secretary Tim Geithner backed off from a deadline that would have forced the issue. A Treasury report that could have slapped the “currency manipulator” brand on China has been delayed indefinitely while Chinese President Hu Jintao visits Washington for sensitive talks, nominally on nuclear issues but likely to be much more wide-ranging.
All is not settled with between Beijing and Washington, but at least the swords have been put back in their sheaths. We have warned in the past that China would not bow down to public pressure to revalue its currency. Instead, a behind the scenes compromise will likely be reached, probably involving wider trading bands for the yuan within the next few months.
Pressure on Beijing will likely be eased even further at the end of the week as China is expected to report its first monthly trade deficit in six years. President Hu could hardly have wished for better timing to deflect criticism of Chinese trade imbalances.
The Shanghai Composite Index appears to be moving on a positive trend of its own, although trading in China was closed on Monday. After briefly dropping below the psychologically important 3,000 mark recently, the Shanghai Composite Index last week advanced 3.2 percent to 3,157, the biggest weekly gain this year, surpassing its 100-day moving average of 3,136.
Technical trends in Shanghai appear to indicate continuing strength. The apparent end of weakness in Shanghai should take further pressure off Chinese ADRs.
One last ray of sunshine for the Chinese economy comes from a new report by the International Monetary Fund. The IMF has raised its forecast for global growth to 4.1% this year from a January prediction of 3.9%. The 0.2 percent gain is another welcome measure of global economic acceleration to a Chinese economy that is still heavily reliant on exports.
The IMF is forecasting 4.3% global growth for 2011. The U.S. is expected to grow 3% in 2010 and by 2.4% next year. All of these numbers are relatively strong signals that the world is emerging from recession and global trade can be restored, although there are continuing signs of weakness in Europe according to the IMF.
Well done is better than well said. ~Benjamin Franklin
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