How ironic that the near-death experience of the world economy in 2008 originated in the US, the country that promoted aggressively the merits of private enterprise, free trade and using market forces to discipline behaviour, yet has now responded with the opposite policies of huge public subsidies, regulation and near-total state provision of mortgage finance!
While America looks increasingly like socialist, sclerotic Europe, China becomes more like the US in its 19th century capitalist heyday. It is, Bolton says, "the investment opportunity of the next decade."
Investment bank JP Morgan recently predicted that China "will engineer a soft landing" with economic growth expected to bottom out in the first quarter of next year at 8 per cent.
It seems to me the very recent weakening in Chinese stock markets is more likely to be an opportunity to buy than a warning of an incipient ending of the bull trend.
CLSA Asia-Pacific's strategist Christopher Wood recommends that investors use the current correction in Chinese markets to buy the shares of banks and insurance companies, which should benefit from higher interest rates. "Chinese banks remain one of the few 'cheap' areas left in blue chip Asia."
He reminds us that the last time inflation and interest rates rose in China, in 2007, shares rose as investors interpreted the situation as positive for future economic growth.
Eoin Treacy's view The
argument centred on whether China is the bull story of the century or the greatest
potential threat to the global economy continues to rage and is likely to continue
for quite some time to come. Much of this heated debate is based on conjecture
but if we stick with the chart facts, we will be in a much better position to
profit from any opportunities that arise.
China's exporters were hit hard by recessions in much of Europe and the USA. Tightening measures, the release of non-tradable shares, heightened reserve requirements and attempts to cool the housing market have weighed on the real estate and financial sectors. These represent the majority of the mainland's market cap. Their underperformance has skewed perceptions towards a bearish outlook but this is to ignore the significant growth of the consumer economy.
Chinese consumer oriented shares have outperformed spectacularly this year. Chinese policy remains focused on developing the domestic consumer economy to counterbalance the country's dependence on exports and infrastructure development. Attention is increasingly being directed towards moving up the value chain in terms of manufacturing. Increased spending is also being directed towards healthcare and social security in an effort to provide a greater social safety net and decrease the requirement for such a high savings ratio.
Healthcare, Consumer Discretionary, Consumer Staples, and Information Technology occupy a comparatively small portion of the country's total market cap but are growing steadily, exhibiting relative strength and are where China's future development is likely to be focused.