Your Portfolio Stopped Growing? Here’s Why You Really Need to Think Chinese63 views 2013-09-13 07:00 Tags: chinese consumer economic emerging global inflation
Yes, many analysts and mainstream media outlets have been suggesting China is no longer a viable region for investments. I even heard a hedge fund manager say the potential in U.S. stocks is greater than that of China. While I do favor U.S. companies, to overlook China makes absolutely no sense. (Read “Why Chinese Stocks Are Taking Off All of a Sudden.”)
Just take a look at the recent economic numbers. Assuming they are valid, these numbers prove that there are clearly reasons to get excited about shifting some capital to Chinese stocks or multinational companies that derive a major portion of their revenues from China.
The key exports metric has been rising for two straight months. The country reported a healthy 7.2% rise in its exports in August, up from 5.1% in July and -3.1% in June, according to the General Administration of Customs. (Source: Orlik, T. and Kazer, W., “Economy in China Benefits From Stronger U.S. Demand,” Wall Street Journal, September 8, 2013.) This is extremely positive and indicates that demand for the global economy is on the rise.
A strong Chinese economy makes for a stronger global economy.
With the economic renewal, we are seeing a demand for raw materials from China. China imported 526.7 million metric tons of iron ore for the 12 months to August, up 8.1% year-over-year. (Source: “Freight prices soar on iron ore demand from China,” China Economic Review, September 10, 2013.) Iron ore is used to produce steel, so there is clearly a renewal in industrial output and building in China.
Still not convinced?
Then consider that Chinese consumers are spending at levels many times higher than those in the United States. In August, retail sales in China accelerated 13.4% year-over-year. The strong growth in domestic spending is what the government is trying to push, and it looks like it is working. Strong domestic consumer spending drives gross domestic product (GDP) growth and reduces the dependence on foreign demand.
Industrial production jumped 10.4% in August, well above the 9.7% consensus estimate, and the amount of fixed asset investments surged 20.3% year-over-year. (Source: McDonald, J., “China’s factory output, auto sales improve,” Associated Press, Yahoo! Finance, September 10, 2013.)
And so far, the impact on consumer inflation has been manageable at 2.6% in August, according to the National Bureau of Statistics of China. The reading is well within the country’s targeted range, meaning the country can continue to provide stimulus when needed.
So, if you haven’t done so already, go and take a look at China as an addition to your growth portfolio.