Inflation is going up. Interest rates are going up. Energy costs remain high and raw material prices are going up. Still, I feel good about the stock market this year. I don’t think we’re going to see the broad market averages roar in 2006, but my “gut” is telling me that things are going to work out just fine.
The stock market isn’t scared of higher inflation or higher interest rates to try to control it. The market’s been expecting this for quite some time. You can’t have oil and gold prices rocketing higher and not expect inflation to creep into the economy. It’s particularly funny when the government calculates core and non-core inflation, where the former excludes food and energy costs. Who doesn’t have food or energy costs to deal with?
I’m not worried too much about higher inflation and I think the broader market isn’t either. Perhaps this is why the main indices rose upon release of the latest inflation data.
Right now, I’m researching a lot of new Chinese companies. Previously, I mentioned that there’s been an onslaught of Chinese listings on American stock exchanges and frankly, many of these companies are small, but are growing at astounding rates.
I’m excited about investment opportunities in China. By listing their shares on American stock exchanges, it helps legitimize their enterprises and it helps those companies adhere to stricter market regulations. Not only that, but we get to speculate in these opportunities in U.S. dollars.
Much like the stock market knows that inflation and interest rates are going up, it also realizes that Chinese stocks are susceptible to major price volatility. Relative valuations can also be high because there is so much appetite for shares in these companies.
Going forward, it’s going to be a great environment for those of you who are traders. Short-term investing is making a comeback in this market and Chinese stocks have contributed to this effect.