Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

China: New Leadership, Focused Growth

Friday, December 7th, 2012
By for Profit Confidential

China: New Leadership, Focused GrowthChina has avoided a feared hard landing, and its economy is showing signs that growth is coming back, albeit slowly. At its 18th National Congress of the Communist Party of China, the country appointed a new president and premier who will lead the country for the next decade. (Read “Never mind Obama and Romney; Watch for Jinping and Keqiang.”)

If things go well and China opens up more to the world stage, the next decade could be special for the country. The change at the helm comes at a critical juncture, as the country is currently facing stalling economic growth following years of explosive gross domestic product (GDP) growth that propelled the country to overtake Japan as the world’s second-largest economy.

According to Reuters, China’s GDP growth is estimated to rise and rally back to above eight percent to 8.2% in 2013, driven by heavy stimulus, according to the Chinese Academy of Social Sciences. (Source: “CASS: Chinese economy to grow 8.2% in 2013,” China Economic Review, December 6, 2012.) Of course, much of the economic recovery will be dependent on what happens in the eurozone over the next few years.

While many are ditching China, I continue to be a Chinese bull looking forward. I feel the golden years for the country are actually still to come. Just consider the 1.3 billion people, surging middle class, rising income levels, and a concerted government move to continue to drive the country’s economic turbines to expand the country’s power.

In November, the HSBC Purchasing Managers’ Index showed that manufacturing activity came in at an expansionary 50.5, a 13-month high. The reading helped to confirm China’s own internal reading that showed the Purchasing Managers’ Index at 50.6 in November, according to the National Bureau of Statistics and the Federation of Logistics and Purchasing. (Source: “China’s manufacturing expands for second month,” China Economic Review, December 3, 2012.)

Unlike the United States, China has ample cash reserves of over $3.0 trillion that it can use to pump up the economy, which is a key reason why I’m a huge supporter of China.

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The outgoing government stressed the desire to power the Chinese economy forward and double GDP by 2020.

In my view, the selling of Chinese stocks has been unwarranted. In the past, we had the issues with fraudulent results of Chinese reverse-merger stocks listing on U.S. exchanges. The U.S. Securities and Exchange Commission (SEC) and stock exchanges have cleaned up the mess, so there’s now more trust.

The selling in the top Chinese stocks listed in China and Asia has been overdone. If you want to play the top Chinese companies, or what I called China’s DOW stocks, take a look at the iShares FTSE China 25 Index Fund (NYSE/FXI).

FTSE China 25 Index Fund Chart

Chart courtesy of www.StockCharts.com

If you are looking for more risk and return in China with more growth-oriented companies, take a look at the PowerShares Golden Dragon China (NYSE/PGJ).

PowerShares Golden Dragon China Chart

Chart courtesy of www.StockCharts.com

The bottom line is: I continue to like China longer-term. There is no doubt in my mind that the country could become a more influential and powerful country economically.

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George Leong - Financial Planner, ConsultantGeorge Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. Add George Leong to your Google+ circles