Chinese Stocks - Lots Of Consolidation in Chinese Stocks
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Lots Of Consolidation in China Stocks
The China small caps have been a bit dead on the screen over the past two weeks, consolidating pretty strong gains from the October bottom. This is normal in the recovery process for any market sector.
We're finally having a reasonably strong rebound in the US markets, fueled by the belief something the Europeans might finally step up in a unified manner and deal with their banking and sovereign debt crisis.
The Chinese markets- in China, continue to trade very poorly. While I believe many of the Chinese small caps remain severely undervalued, the overall Chinese markets might need to start a rebound phase to put a little life in these stocks so they can head north to the next level.
Here's a interesting chart for your review.
This chart shows the Shanghai A shares in black- that's China's version of the S&P 500. Note this index continues to make new multi year lows while the S&P 500 chugs north.
The China markets are continuing their Ursine slant, and it's quite amazing how the sentiment has shifted from overheated, inflationary environment to major slow down/recession with the flip of a switch.
Here's the three legged stool over current Bearish thinking on the Chinese economy:
Exports will slow dramatically, fueled by decreased demand from Europe and North America.
The Chinese consumer is not ready to fill in the gap that will be created by lowered exports, so GDP growth will suffer.
There will be a real estate meltdown of major proportions in China.
Let's look at each of these problems individually:
Exports Slowing
Exports are already slowing rather rapidly. China's November trade surplus came in at $15.2 billion- down from nearly $27 billion in November of 2010.
China is becoming a little more protectionist as manufacturing is slowing- Keeping the YUAN valuation propped up againt the wishes of the Western World. Even Obama is starting to make some real noise about this.
Chinese Consumer
While the Chinese consumer might not be able to fill the gap, retail sales are up a whopping 17% this year in China- that's an impressive gain.
Moreover, in a recent survey it was found 58% of Chinese workers feel they will make more money next year- this leads to consumer optimism, and more spending at the retail level.
Real Estate Meltdown
Thanks to banking regulations, it appears China real estate holders are not over leveraged. Appearances can be deceiving. While there's no way to measure it, China real estate holders might be very overleveraged thanks to their "Shadow Banking System".
Interest rates have been reasonably low in China, and companies are flush with cash on their balance sheets.
A Chinese CEO will do anything he can to make money with little regard for the business model of his company. Many companies borrow from the banks at lower rates and re loan to indviduals at much higher rates to fund real estate purchases. Oftentimes, these loans not even documented.
Real estate prices have come down, but if there's some sort of a melt down it's impossible to gauge the potential impact as it's not known what the scope of these Shadow Banking Loans might be in a collapse.
For these three reasons the China markets continue to be bearish.
I don't believe the US listed China small caps will head a lot higher without a better climate in their markets.
It's been about a year since we entered this Bear Market, so it's due to end soon.
We might be coming up on the Perfect Storm of appreciation. Stocks in the portfolio like LIWA, CAST, and CXDC look as if they could be headed for higher ground. Their charts simply look great.
When the China markets start rebounding, look out above.
Warmest Regards,
Larry Isen
Article Source: Articlelogy.com
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