Are the bulls back in China?
While 2012 may not be considered stellar by those investing in Chinese stocks – the Shanghai Composite is down about 4% for the year, while the Global Dow Jones Index has gained 7% — investors have recently returned to bidding the country’s shares higher.
The Shanghai Composite is up about 4% during the past month, outpacing the Global Dow’s 2% drop.
Similarly, the China Internet motif is one of the past month’s top performers, rising 1.9%, while the S&P 500 has fallen 2%.
Part of the turnaround seems to come from the perception by investors that the so-called hard landing expected for China’s economy may be avoided. On Tuesday, the country’s purchasing manufacturer’s index delivered a preliminary reading of 49.1 – still technically a contraction, but above the 47.9 level for September.
As a Bloomberg News story pointed out, the PMI survey may bolster prospects that China’s expansion will bounce from a three-year low after official data showed exports, production and investment accelerated last month. A report by Morgan Stanley declares that the Chinese economy is “bottoming out” and growth will likely accelerate during the next few quarters.
The longer-term significance, of course, is that this may help build the case that one of the ultimate fears about China – that it faces a Japan-style economic boom and bust – could be avoided.
As a recent Reuters story notes, whether that happens has much to do with how quickly China can change its export-driven economy into one more geared to services and domestic consumption. Those who think China can avoid a bust point to how far the country has yet to grow.
For example, China’s per capita GDP last year was $5,445. When Japan’s economy crashed in 1990 and began its “lost decade,” its per capita GDP was $43,000, in 2011 terms.
Others, however, continue to point to high housing prices in China as being ripe for a bubble-then-bust scenario. Bank of Japan Deputy Governor Kiyohiko Nishimura wrote in a recent paper that property bubbles popped after loans and working-age populations peaked. China’s working-age population is close to peaking, according to Nishimura.
Performance data was as of 10/25/2012. Performance data and returns are based on past and are not representative of results an investor could expect to achieve. The 1-month and 3-month return shows how a particular benchmark motif could have performed over a stated period of time. Returns of individual motifs do not take into consideration certain fees and/or commissions, corporate actions, or other activity that can affect the return an investor could expect to incur. The performance results attempt to follow a standardized and consistent methodology for performance reporting. While we believe the performance data is gathered from reliable sources, the information that generates performance results uses historical data that we believe to accurate but has not been validated and may contain errors in pricing or other conditions. Reference to return of index does not imply its performance is comparable to a motif, but rather serves to provide a reference point. For detailed information on how we calculate returns, please visit www.motifinvesting.com.