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April 25 2017

Commentary by David Fuller

The Biggest Stock Markets Have Not Had Such Diverse Performances Since 2008

Here is the opening of this interesting article from Bloomberg:

The Chinese and U.S. stock markets are going in opposite directions.

An intensifying crackdown against leverage in Asia’s biggest economy has rocked the hither-to unflappable Shanghai Composite Index over the past week, sending it to a three-month low last session. In the U.S., the largest equity market is embracing a risk rally spurred by the French election, with the S&P 500 Index continuing to build on reflation-trade gains ignited by Donald Trump’s November victory.

The divergence means the two markets are the least in tune since August 2008 -- just before the collapse of Lehman Brothers Holdings Inc. unleashed chaos on the global financial system.

Chinese officials have mainly kept mainland stocks on a tight rein after routs in mid-2015 and the start of 2016 reverberated through world financial markets. Until Monday’s 1.4 percent slump, the Shanghai Composite Index hadn’t fallen more than 1 percent for 86 trading days.

As Beijing’s focus on reducing risk in the financial system shifted from money-market tightening and reducing leverage to containing speculation and irregular trading, the two markets starting moving in opposite directions in the past month.

The latest step by officials is targeted at entrusted investments -- read more about the deleveraging efforts here.

In one sense, it’s a sign that investors overseas aren’t as worried about Chinese market ructions as they were in previous years -- perhaps partly thanks to underlying strength in China’s economy. Given how mainland stocks have become increasingly linked to global markets, however, the divergence may prove to be a short-term phenomenon, according to Daniel So, a strategist at CMB International Securities Ltd. in Hong Kong.

“The Chinese government is squeezing speculation out of the market and while investors adjust, it will inevitably lag behind other parts of the world," So said.

David Fuller's view

The apt opening for my comment on the article above is this quote from the memorable Benjamin Graham:

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

In the short run market moves are a matter of confidence. If a sufficient number of influential investors in the market crowd are feeling optimistic, they will buy. When others see the market rising they will also be tempted to buy in what becomes a self-feeding bullish trend.  This will continue until most investors interested in the trend are already long. 

While the market holds its ground for a short period, most investors will remain hopeful.  However, when the market has clearly paused for longer than earlier on within the trend, some investors will be tempted to close their position. When the market has fallen back more sharply than previously seen, others will become pessimistic and also sell, causing a bearish trend to form which retraces more of the previous advance. 

International investors face many more choices and this can be confusing.  A practical way to monitor these markets is by looking at weekly price charts for the indices of interest, showing at least 10-years of back history for perspective.  They will quickly reveal Benjamin Graham’s voting machine results in terms of relative strength or weakness over the short to lengthy medium term.  Those longer term charts will also show bullish or bearish weighing machine characteristics.

So which stock markets look the most interesting?

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April 25 2017

Commentary by Eoin Treacy

April 25 2017

Commentary by Eoin Treacy

April 25 2017

Commentary by Eoin Treacy

April 25 2017

Commentary by Eoin Treacy

Email of the day on eating insects

Hello I keep seeing documentaries explaining that in the future in order to feed everyone more people will be eating insects, I hope they are wrong, but if it is true are there any ways to invest in this theme?

Eoin Treacy's view

Thank you for this question which appears to have made its way into the public arena for some reason. Interestingly my daughter assured me last night that we would all be eating insects in the future, at least according the Time for Kids she had just read at school. Personally I regard that as a pretty dystopian way of thinking about the future. I understand the argument that insects are easier to raise, require less water, grow faster and are packed with protein. However wouldn’t it be better if we just ate less meat to begin with? In my opinion the most compelling bullish case for farming insects is as food for other animals or fish. 

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April 25 2017

Commentary by Eoin Treacy

Inside China's Plans for World Robot Domination

This article from Bloomberg News may be of interest to subscribers. Here is a section:

Under a sweeping proposal called “Made in China 2025,” as well as a five-year robot plan launched last April, Beijing plans to focus on automating key sectors of the economy including car manufacturing, electronics, home appliances, logistics, and food production. At the same time, the government wants to increase the share of indigenous-branded robots in China to more than 50 percent of total sales volume by 2020 from 31 percent last year.

Robot makers and the companies that automate will be eligible for subsidies, low-interest loans, tax waivers, and rent-free land. “Fair or unfair, you can expect Chinese companies will get a lot of preferential treatment and funding,” said Rose with Boston Consulting. “They actually have a comprehensive plan to get there. And their track record isn’t terrible either.”

Industrial automation is crucial for China, home to an aging population and shrinking labor force. Manufacturing wages have more than doubled in the last decade. Also, younger Chinese workers, “don’t want to do repetitive work,” said James Li, President of ABB Robotics China, the local unit of Switzerland’s ABB Ltd. and one of the first robot companies to set up in China. It supplies machines that spray paint cars and man electronics assembly lines. “Robotics is hot,” said Li, who notes that local governments are investing heavily in industrial parks to develop the technology.

 

Eoin Treacy's view

The big question for robot manufacturers is will China do for their sector what it did for the solar sector? My sense of the challenges involved is that Chinese dominance of the robotics sector is a medium-term rather than short-term possibility. The companies involved have a lot of progress than needs to be made in developing software, optics and interfaces to truly challenge incumbents. However we can be reasonably assured they will be get better every year.  

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