When China celebrates its New Year next month, I will transition into the Year of the Ram, also known as the year of the goat or sheep. If you believe in luck, this could be a good sign. The ram is eighth in the 12 zodiac cycle, and in Mandarin, "eight" sounds very similar to the words for "prosper", "wealth" or, in some dialects, "fortune". As you might imagine, the Chinese believe that the figure is very lucky.
But, of course successful investing involves much more than luck. At a time when not only China, but most of the rest of the world is trying to get its groove back, it is important to be aware of the factors that shape markets, including changing government policy. It is said that government policy is a precursor to change, so it is important to follow the money.
With this in mind, I asked Xian Liang, portfolio manager of our Region China (USCOX) Fund, to outline some of the most compelling to remain bullish in the Asian giant cases.
Back in October, I pointed out that one of the main contributors to the slow growth of the European Union is its inability to balance their monetary and fiscal policies. It has been eager to tax everything and everyone that moves. Waiting for European Central Bank (ECB), Mario Draghi, president of acting often feels a bit like waiting for Godot. The investor patience is running out.
China, by contrast, is much more sensitive and actively committed to making full use of policies both in their arsenal to stimulate its economy cooling.
On the monetary side, according Xian are cuts interest rates and an easing of reserve requirements for certain deposits. The aim is to facilitate access to loans for businesses and individuals looking to buy expensive items such as homes. As a result, Chinese entrepreneurs have been increasingly able to start more businesses.
Employment growth has been so strong, in fact, the government has achieved its goal of job creation shown in its current period of five years ahead of schedule and by a wide margin. The country has grown to millions of jobs with great efficiency and falls in GDP.
Although the Chinese real estate market has stagnated in recent months, these new monetary measures will help to pick up steam. We are already seeing some improvements, with shares owned home moving higher.
The regulations are an indirect imposition of the economy, while deregulation unleashed entrepreneurship.
On the fiscal front, the government is planning to spend $ 1.6 trillion over the next two years on infrastructure projects in various industries-300 programs separate infrastructure, to be exact, according to BCA Research.
As I noted last month, many of these projects involve largely the TGV, both domestically and abroad. China has already got multiple offers construction with countries ranging from Brazil, South Africa, Nigeria, India, Russia, the US and others.
In fact, weak global demand has contributed to China Index December weak purchasing manager (PMI), which fell to a 18-month 50.1. China has been quick to respond to drop PMI data with a fall in interest rates.
The positive aspect of the falling prices of raw materials is that since China is a net importer of crude-oil raw materials especially, the country has been able to save tremendously on their bills for gas and oil. In November, I reported that for every dollar the price of a barrel of oil droplets, China's economy saves about $ 2 billion a year. Since its peak in June, crude has fallen about $ 50 you do the math. This has served as a major transfer of wealth from oil producing countries to the coffers of China.
Speaking of oil, lower oil prices; are currently less than $ 50 per barrel, have been good for airlines, Chinese companies. As you can see, there has been a clear inverse relationship between the performance of oil and airline stocks.
China is the largest investor in government bonds United States. The country has accumulated nearly $ 1.3 trillion, so that a strong dollar and falling oil prices economic benefit flexibility.
Most of the Chinese middle class might be able to afford to travel abroad, specifically for the US, where inevitably they will spend their money.
Chinese stocks are currently valued below their own historical averages, as well as those from other global emerging markets, which makes them attractive and competitive.
"The odds favor mean reversion to continue," said Xian. "The best performing Chinese markets, the global liquidity that could attract."
Chinese stocks, as expressed in the MSCI China index, are now a lot better than the S & P 500 index value, trading at 10 times earnings, while the US It trades at 18 times.
China A-Shares surprised the market by breaking last summer, after delivering 66 percent for the period of 12 months. It is seen as breaking the long-term bear market.
Moreover, it is unlikely to be exhausted upwards. Although not as stellar bargain as before, are not overvalued, and retail and institutional investors could accumulate in flashbacks.
Pop-Total-Returns markets late 2014
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For the stock market, has recently added USCOX exposure to A-Shares to capture more attractive valuation. In the current environment, we believe the safest bets are invertible H shares, which are powered by A-Shares and, in 2014, returned 15.5 percent. H-shares comprise the vast majority of the fund's exposure to Chinese stocks, with greater exposure gained through the class of shares traded funds (ETFs).
On the right you can see a sample of the increasingly popular emerging markets periodic tables, soon to be available exclusively to subscribers of our award winning Investor Alert.
The RAM is the New Bull
As GARP (growth at a reasonable price) hunters, we are cautiously optimistic about the coming year and expect great things from the second largest economy in the world. The Chinese government and the Central Bank are committed to jobs and growth in the manufacturing sector and the easing of policy. The stocks were valued reasonable, and low commodity prices should continue to offset the slowdown in global demand.