I wrote last about Market correction and Fiscal Disaster, which media has started highlighting now but not in details as shown in report.
Our market has continued correction and has corrected close to 12% from the high of close to 5300 to recent intraday low of 4671.
Watch the level of 4633, if breached and trades below it for some more days, correction may accelerate. I will update you on market shortly in detail.
But, today I want to talk about China.
Because, I see a big opportunity to make a bundle out of Chinese market.
Chinese market was first to rise after crisis, was first to double from bottom and was again first to correct meaningfully 24% since July 2008. It has consolidated in last 6 months in the broad range and now looks ready to be first to ride again.
Before correction in 2008, Chinese market topped out around 6100 in 2007, corrected 72% in 2008 placing bottom at 1664. Yesterday’s close was 2982.
Chinese market is still whopping 50% down from the high of 6100, offers an attractive investment opportunity.
RSI, MACD and Stochastic also look bottomed out.
Click on below links to have technically view of Chinese market.
Debt to GDP
Fundamentals of Chinese economy are unparallely strong in world. I had shown in FISCAL DISASTER column, that Chinese Govt’s total debt to its GDP is just 21% against 88.9% of India and more than 100% of Japan and UK and close to 90% of US. This puts China on leading front. Because, China has more money to spend to stimulate economy, to protect from another financial crisis and above all to ensure that long term growth of economy is sustained.
Foreign Exchange Reserves
China’s foreign exchange reserves is swelling at $2.4 trillion. China’s reserves grew 23% in 2009, $453 bn in a year. It is 2.5 times of the size of Indian economy(Indian GDP). It is the largest reserves on the planet.
To put it into perspective,
To put that cash hoard into perspective, if one were to lay dollar bills end-to-end, 2.4 trillion in bills would stretch to 232,575,758 miles in length — enough to go from the center of the earth to the center of the moon (238,857 miles) and back almost five times over.
Budget Surplus / Deficit
Unlike other nations, including even emerging nations, China does not have budget deficit but its fiscal revenue( Tax Receipts) is also reaching a record high of $ 1 trillion(equal to size of Indian economy or say GDP or say almost 8 times of expected revenue by Indian Finance Ministry ), rise of 9.1% year on year. India is expecting revenue deficit in 2009-10.
Some Record breaks, China registered in 2009
China surpassed Germany and become largest exporter of manufactured goods this year.
China is about to surpass Japan’s economy this year and to become second largest economy of the world.
Not US, but China is now world’s largest automobile market in 2009, with annual vehicle sales at 13.64 million units, up 46.15% over 2008.
Why China’s Consumption is Exploding?
First, two years ago, amid crisis Beijing authorities realized to keep economy stable, they need to invest heavily in rural areas, bringing them close to cities in terms infrastructure and facilities.
Second, Chinese banks lent unprecedented amount, in total $1.3 trillion in loans in 2009, 95% more loans than 2008.
Third, Fixed asset investment is estimated to have grown 31% year on year, first time more than 30% since 2000. Moreover, planned investment for newly launched projects grew 70% year on year in 2009, virtually guaranteeing investment — and jobs — will grow considerably in 2010.
Fourth, manufacturing sector is growing at rapid pace thanks to stimulus and bank lending.
Export vs Domestic Consumption
Sure, China is heavily dependent on exports. But, spending of Chinese Govt to stimulate rural economy, banks whopping $ 1.3 trillion in lending and recent opinion to balance the trade surplus, China may decide to increase the wages over stronger yuan confirms Govt’s determination to increase consumption over exports..
In percentage terms to GDP, Chinese stimulus is higher than west and more to that Chinese are not worried about their Govt going broke!!!
These measures would ensure that domestic consumption in % to GDP increases, replacing exports share of GDP.
Chinese Property market is a bubble
There are concerns about Chinese property market is about to burst like happened in West after 60% price rise year on year.
But, nothing is further from the truth.
Chinese property boom is financed by household saving not bank lending like happened in west.
According to BCA Research, a Canadian firm, loans to home buyers and property developers account for only 17% of chinese banks’ total loans, against 56% for American banks.
Moreover, residential property buyers in China have to put down a minimum of 30% before taking out a mortgage. For second homes, the minimum is 40%, regardless of an individual’s net worth.
As a result, the average mortgage in China covers a little over half of a property’s value, as opposed to the U.S., where the average mortgage, before the real estate crisis, leveraged properties to the tune of more than 95% of their value.
And mortgages in China are not sliced and diced up like they were during the mortgage crisis in the West. Mortgages are made directly between the buyer and the local bank.
Bottom line: I see no evidence that any dip in the property markets
in China that does occur will take down its economy. None whatsoever.
Time to invest in China is now. I expect bare minimum 50% return from Chinese market.
I expect China Composite to rise from under 3000 to at least little over 4500 this year.
I expect, China is one of the LEAST RISKY, EXTREMELY ATTRACTIVE, UNDENIABLE, opportunity of 2010.
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