Clouds Gather as China Bulls Celebrate
NEW YORK (TheStreet) -- Although I have been bearish on China for 18 months or so, late last year our work showed there would be a bear market rally in the China economy and stock market. That happened right on schedule.
The latest GDP growth number increased to 7.9% from 7.4% the prior quarter. We don't believe China's governmentally produced economic numbers any more than we trust those from Washington. Our expectation was based on the national congress and appointment of a new China leadership.
Engineering a period of optimism makes it easier for a new government. And under communism, what the government wants is what the government gets, even if it is a Potemkin village.
However, foreign direct investment flows in December continued the one-year declining trend, down a hefty 4.5% for the month. That means foreign capital is flowing out. In emerging markets, that's usually a very big warning signal. It's much more important than the GDP number.Late last year, China relaxed rules on foreign investments in Chinese stock exchanges. To us, this was a confirmation of the urge to raise foreign exchange and reverse the outflows. China needs foreign exchange to pay for its global shopping spree. They are buying up natural resources around the globe at an accelerating pace. The big deals get publicity. But there are many smaller deals you never hear about. China knows that the only real assets are what is in the ground, not what the central banks create with their computers. They also need foreign exchange to support the huge gold purchase program. Currently China is the second-largest gold producer. We suspect that China also wants to be the largest gold owner in the world. China's big problem is that it is so dependent on exports. It's about 70% of the economy. And it can't do much about the decline in export growth. To see what's happening to exports, let's look at shipping, as obviously the goods have to be shipped. The chart of the Baltic Dry Freight index shows the shipping rates. If there were a meaningful pickup in shipments, we would expect freight rates to rise. Obviously, that's happening. Here is a chart of the Baltic Dry Freight index going back to 2002 (courtesy of www.investmentTools.com).
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV