A 30% RALLY IN CHINA IN THE SECOND HALF?
More from the contrarian view on China. And this would certainly light a fire under the global economy. Citic, CIC and Shenyin & Wanguo Securities Co. say the Shanghai Composite is due for a serious second half rally as expectations of a hard landing have become too pervasive (via China Daily):
“The Shanghai Composite Index’s 6.2 percent retreat this quarter sent the gauge to 11.6 times estimated profit, data compiled by Bloomberg show. It took the global financial crisis and a decline in China’s growth rate to a seven-year low of 6.8 percent to push valuations this low in November 2008. The Shanghai gauge rebounded 49 percent in the next six months.
CITIC Securities Co and China International Capital Corp, which predicted the drop this quarter, say the market will rally in the second half as inflation peaks and the government sustains the economic expansion by easing credit. Even Nouriel Roubini, the New York University economist who says China may face a “hard landing” after 2013, expects growth of at least 8.8 percent in 2011 and 2012.
“The market has basically priced in a very pessimistic outlook for the economy,” said Ling Peng, chief strategist at Shanghai-based Shenyin & Wanguo Securities Co, ranked China’s most influential research provider by New Fortune magazine last year. “A hard landing of the economy is very unlikely,” he said, forecasting that the Shanghai index will advance as much as 15 percent by the end of the year to about 3150.
…CITIC Securities recommended shares of property developers and cement companies because of the government’s housing measures. China’s biggest brokerage, which turned “positive” on the nation’s stocks in a June 20 report after being “cautious” since April, has a six-month target of 3500 for the Shanghai index.”
3500 is approximately a 30% rally from here and would represent the highest levels since the middle of 2009 after the Shanghai’s incredible 100%+ rally off the 2008 lows. Of course, this index has tended to lead other equity markets as China’s economy remains the single most important leg in the global economic chair. Although I’ve been bullish just recently I have to think the macro evidence leads one to conclude that you should probably take the under on 3500. Range bound is probably more like it. And that means my approach won’t change much. This is still a traders market.
Cullen I’m not sure whether I agree that a bullish view is the “contrarian” view – from where I sit down here in resources-rich Australia, the consensus view is very much strong growth as far as the eye can see.
i’d have to agree.
Valuation is low in largecap ADS’s and very low in US listed smallcaps ADS’s, For example, just check out CHL, PE=10 with 4% div.
lots of closets full of skeletons there……i’m in the range bound camp-at-best.
Recommending property developers in a country knee deep in maybe the largest property bubble ever (and I am from Ireland) makes me laugh. Maybe I’ve been tainted by events over here, but all the talk I hear from China re property is eerily similar to Ireland 2000-2006 (and closer to 06). Also, how reliable are Chinese companies accounts ?
Good point. I was just in Shanghai last week. Local paper said there were record high vacancy rates – lots of empty apartments. Still very high prices but record vacancies.
The “I become bullish” link leads to this?
http://pragcap.com/debt-ceiling-and-austerity-comes-at-a-cost/comment-page-1#comment-60350
OK. See it in the comment.
China is in trouble. Its economy is based on a real estate bubble that is in the early stages of collapse.
It looks as if big money is lobbying hard for the greater fools to step in and relieve them of their positions before that happens.
If this “contrarian” view turns out to be correct it will give some credibility to centralized (proactive) control. Did we do anything in this country to stave off our housing bubble?
Free Market capitalists are like an engine without a governor (jet engine) it will rev until it blows itself apart.
The global market makes making intelligent investment / trading decisions that much more difficult. Keeping track of the whole world at the same time and trying to make predictions accordingly is like predicting which way the wind will blow a feather….
China and India yield curves inverted!
I don’t have a clue when china will contract. But the longer this game is played the more dire the outcome.
But if CITIC securities and shenyen wanguo says buy and fortune magazine gave them the honors of most influential well then how could fortune and a securities company be wrong?
I know you keep focusing on the inverted yield curve, but I think you’re missing out on what this implying. A fall in growth from 10-11% to 7% would likely be most welcome in China and necessary.
The world will not collapse if that happens.
prescient11 -This investing thing can be a real doozy sometimes.
For me a slowdown there even a small one starts to expose some cracks.
We don’t have much in the way of asia in our portfolios. 5% currently in DFJ. But we’ve also been buyer of things Asia will buy and we closed those out also. We are sitting on 48% cash now.
So you may be right about a slowdown and move higher. But we are not commiting capital to that trade thus far.
When my clients tell me to sell China I will leverage up and buy. If you want a contrarian buy signal it’s my clients. I love them…but I wish I could play back the messages lectureing me as to why I wouldn’t buy silver 3 days before it blew up…..
I don’t have much conviction right now on anything at 1320 on S&P. BUT…looking forward to the ISM number tomorrow. Do we go sub 50?
VRB, I just don’t know if I could manage other people’s money, too much stress I think!
Long the AUD is probably a very good play, but good luck. There are plenty of cracks in China, to be sure, question is, how much superglue is there as well…
When I look at the graph then it seems only the chinese QE had a major impact. QE2 only held the stockmarket upright/from falling/crashing down.
That’s because the Chinese did not dither and actually injected that money directly into the economy.
And if the financial system siezes up a bit, they will do it again.
When you think about the market, do not ask the question whether the snp is properly valued at 1300.
instead, ask what is the value of the 1300 level.
Therein lies the near term future of the market, I think.
I by no means am the perfect predicter of anything, and just lost $10k on some daytrades of stocks I really believe in. But got too extended on margin and that is that.
However, my view is that this market is going to hit new highs in 2011 and I would not short anything except for perhaps a couple days/week. And yeah b ferro, I’m making that call now so put it in your book.
This blog especially should be about the free exchange of macro and micro views on all topics.
Personally, my plan is to exit the market next summer, because if the pubs look like they have a chance to take back the WH in ’12, and then likely rise to a super majority 60+ votes in the Senate in ’14, the debt implosion that we take as inevitable has a possibility of being avoided and I think that will be very detrimental to the market in the short term.
Best of luck.
i hope there is a system that can make people account for what they said in public.
What??