It’s no surprise that everyone is wondering when the current market volatility will end. I don’t blame anyone for asking this question. Just in January, we experienced 16 days in which the Dow jumped up or sold off more than 100 points. This is bad enough, but when you take into consideration that there were only 21 trading days in the month, the picture gets a bit more frightening.
I don’t call market tops or market bottoms, but it seems clear to me that we’re getting close to one of those scenarios.
Lately, I’ve been asked to comment on the severe snow storms in China, the Fed and China’s economic future. Today, I’d like to talk about these three topics, ones that help support the basis of which direction I think the market is headed. I think that these are excellent topics of conversation so let’s hit each.
It’s no surprise that everyone is wondering when the current market volatility will end. I don’t blame anyone for asking this question. Just in January, we experienced 16 days in which the Dow jumped up or sold off more than 100 points. This is bad enough, but when you take into consideration that there were only 21 trading days in the month, the picture gets a bit more frightening.
I don’t call market tops or market bottoms, but it seems clear to me that we’re getting close to one of those scenarios. Today, I’d like to talk about three topics that help support the basis of which direction I think the market is headed. So let’s get to those topics.
The Snow: The good news is that many of the problems with China’s winter storms are now behind us. Although over 1 million travelers won’t be able to return home in time for the Chinese New Year holidays, weather is improving in the hardest-hit areas in Southern China. Power is also being restored quickly in the areas hit hardest by the storm. It will take a few weeks for everything to get back to normal in parts of Central and Southern China, but things are looking up from here.
Some people were actually able to dig out and celebrate the Chinese New Year. This week marked the end of the year of the Pig and the beginning of the year of the Rat. According to Chinese astrology, rats are good at accumulating and storing food, so this year is supposed to be a good year for building one’s fortune. Needless to say, that’s exactly what we’ll be doing here at Inside China Dispatch.
The Fed: As we’ve talked about, the Fed cut interest rates by 1.25%. In addition to giving the U.S. market a boost on those cut days, it caused Hong Kong to cut its short-term interest rates by 1%. If you’re not already aware, the Hong Kong dollar is pegged to the U.S. dollar so Hong Kong had to shift its rates lower in order to synch with the U.S. By lowering their rates, they’ve created higher liquidity in the market, which means more money will be able to flow into stocks and not into interest payments. For the current list of stocks that will benefit from lower interest rates in Hong Kong, click here.
While we’re on the subject of interest rates, there was another positive development for investors in Chinese companies. Beijing paused its rate hikes this week in order to help parts of China recover from the storm. By temporarily halting their rate increases, they are also increasing liquidity. Some of the new pools of Chinese liquidity will end up in select Chinese stocks. The opportunity for investment that this rate halt has caused could be massive. Given the intense volatility in the U.S. markets, investors can’t afford not to put some money to work in growing Chinese companies that will receive the bulk of this government-enabled market boost. Get the names of the companies you should buy at this link.
China’s Economic Future: Although Chinese economic growth will probably slow from its current pace of 11.4% in 2007 to a less remarkable 9% to 10% range in 2008, China will continue to be the world’s fastest-growing major economy this year. The Chinese economy also continues to offer the best opportunities for sustainable strong earnings growth and further currency appreciation this year. Leading Chinese companies in consumer and infrastructure sectors will likely increase their earnings by 25% to 35% in 2008. You’ve heard me talk about the importance of earnings and since this growth driver will remain in tact, I think China’s future is still bright.
When to Start Buying Again
Given these positive developments, I believe that, for long-term investors, the rewards are starting to outweigh the risks again.
To put it a bit more plainly, I think that investors like us will be able to safely put some of the cash they’ve been holding to work again and start making serious money. While it is difficult to pick market bottoms, after this correction, I think we are much closer to a bottom than a top in quality Chinese growth stocks. Short-term traders may still have some tough times ahead, but longer-term investors are entering an excellent time to buy.
Now, I’m not recommending that anyone go out and start frantically buying. I’m saying quite the opposite. I think that we’re almost at the time to buy and that there will be specific companies that have been waiting to break out from the cloud of U.S. market volatility and make their runs. I’m watching the global markets very carefully and expect to pull the trigger as early as the end of this month. Be among the first to know which companies to buy and when by joining China Strategy today!
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