I have been continuously facing questions on China since I wrote ” China — Ready to surge 50% “[ Link: https://investmentacademy.wordpress.com/2010/02/11/china-ready-to-surge-50/ ] on 11Th Feb, 2010.
We have been getting more negative reports from world across from experts painting China a big bubble about to burst.
But, nothing is further from the truth. Shanghai Composite is 6% up since then and funds I recommended to investors are up 8-9%.
Why experts are painting China a bubble and what do they mean by that?
Let me quote the recent comments of George Soros on Gold and actions he took later. You will understand from below example, What to make out from China fuss?
On 28th January, 2010 in Davos, Soros said ” George Soros warns gold is now the ‘ultimate bubble’ ”
[ Link: http://www.telegraph.co.uk/fina%20nce/financetopics/davos/7085504/Davos-2010-George-Soros-warns-gold-is-now-the-ultimate-bubble.html ]
On second day, across the print and electronic media, headlines were Gold is in bubble zone and prices may correct after reaching record high levels of close to $1225.
But, tell me frankly How many of them know Soro’s investment philosophy and have studied Soros and know his terminology??
I got calls from investors. I said, I have listened him speaking and appearing for interview on many occasions. And, all the times when he was asked, What would your action be, when you spot a bubble?
Without waiting for a second, he replied — ” I will participate first. ”
And, very next month on 17th Feb, reports came out that ” Soros More Than Doubled Gold ETF Stake in 4th Quarter “. [ Link: http://www.bloomberg.com/apps/news?pid=20601087&sid=aKs0jaibTSmY ]
Imagine if someone acted on his statement without knowing him fully. He would have made big mistake. On 28th Jan, Gold was trading at $1080, next week Gold slid further made a low of $1044. Most of the feared investors would have sold their holding in that knee jerk down slid.
But. that was a bottom. Gold has not looked back since then and now trading at $1160, $120 up from the bottom.
When experts make statements, its not a plain vanilla language.
First, read his recent reports, listen his past interviews, track his forecasting records and then you can understand him and meaning of his statements.
What to draw out from recent concerning reports on China?
I do not deny any of the reports neither do I question the credibility but these experts forecast events sometime a year before and sometimes 2 years before and sometimes even 5 years before.
We had many market experts warning about Housing Credit Crisis, like Raghu Ram Rajan, former economist at IMF, warned in 2005, Greenspan warned in 2006, Roubini was warning since 2006 and many more.
If anyone just believed them ignoring market forces, and sold everything would have missed entire 100% rally between 2006 to Jan 2008.
And, worse if anyone would have shorted market, would have lost shirt even.
let us look at what China bears are saying
Statements from China bears
Biggest Bear – Jim Chanos: ” The bubble may begin to “run its course” in late-2010 or 2011, he said in an interview on “The Charlie Rose Show” that will air on PBS and Bloomberg TV. ”
Former Chief Economist at IMF Kenneth Rogoff: ” Harvard’s Rogoff said Feb. 23 that a debt-fueled bubble in China may trigger a regional recession within a decade ”
China in Midst of ‘Greatest Bubble in History,’ Rickards Says
Citigroup’s Buiter Warns China Facing ‘Boom, Bubble and Bust’
China appears on track for an “asset boom, bubble and bust” that may take three years to play out and probably won’t be thwarted by tighter economic policy, Citigroup Inc. economists said.
Read between the lines and experts are saying that China bubble may burst as early as 1 year later to as late as before the end of next decade. Read words late 2010, within a decade, midst of great bubble and may take 3 years to play out.
They all know that bubble may continue for 3 years, 5 years and more than 10 years even before it bursts.
I believe, you have understood the content, now.
Click to view chart: https://investmentacademy.files.wordpress.com/2010/04/ssec-13th-april.jpg
Close above 3200, will attract higher inflows. Money flow Index, RSI and MACD are sloping upwards.
Why do I recommend to invest in China now and not India?
First, I am value buyer. At 18000, Sensex is at around 85% of its peak of 21000. Chinese market is close to 50% down at 3160 from the peak of 6100.
Second, fundamentally China is unparalley stronger in the world in post recovery environment.
Let us compare some economic facts of China and India. Data estimated 2009…
|Public Debt||18.2% of GDP||59.8% of GDP||Debt to be repaid by Central Govt||India’s % debt is 3 time higher|
|Unemployment||4.30%||10.70%||% of population unemployed||India’s unemployment is twice that of china|
|Fixed Asset Investment||42.6% of GDP||32% of GDP||It is Business spending on fixed assets such as factories, machinery, equipment and inventories of raw material which provides basis for future production and thus creates jobs|
|Credit||$ 6 tn||$ 1 tn||by banks to non bank institutions and individuals||Chinese banks have lent substantially higher to spur the domestic growth|
|Balance of payments||$ 296 bn||$ – 8 bn||surplus or deficit depends on export vs import||China has current account surplus thanks to its exports|
|Exports||$ 1.1 trn||$ 165 bn||total exports in 2009|
|Imports||$ 921 bn||$ 256 bn||total imports in 2009|
|Reserves||$ 2.4 trn||$ 320 bn||reserves of the nation||China’s reserves is 8 times larger that of India|
|External debt||$ 347 bn||$ 223 bn||debt to be repaid to NRIs and short term|
|FDI||$ 576 bn||$ 161 bn||Foreign companies and non resident individuals longer term investments|
My argument is When such a strong market is available at 50% discount vs Indian market at 15% discount from the 2008 peak, why should not I choose Chinese market for investments??
Remember News does not make market but Market makes News.
When I wrote last year in March, 2009 that Stealth bear market rally approaching faster, there were few believers because economic datas pouring in were negative, companies results were negative and investors sentiment was highly negative.
I wrote that time ” As I warned of several months ago, do NOT pay attention to the fundamentals, they are IRRELEVANT AT MARKET JUNCTURES. Stock markets that rally on bad news are SENDING you a STRONG SIGNAL, for the market MOVES AHEAD of any POSITIVE fundamental news or data ”
You have again bad news all around, this time, on China and Chinese market is surging higher.
Act fast, if not invested yet, in China, time to act is NOW.
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