My best investment advice to you is: don’t bet against China. Many have and many will continue to do so; but, as many of you know, I’m a long-term China bull.
In spite of five interest rate hikes since October 2010 and a steady tightening of lending restrictions, the country continues to show strong growth, contrary to the dire expectations saying that China will fall into the abyss with its economy crashing in a bubble-like fashion.
The country’s gross domestic product (GDP) grew a healthy 9.5% in the second quarter, down from 9.7% in the first quarter, but at the high end of the analysts’ estimates.
The strong reading is encouraging given the higher interest rate hikes and lending restrictions to battle the three-year high inflation of 6.4% in June.
The World Bank is predicting annual GDP growth of 9.3% for China this year, up from its previous 8.5% earlier in the year. This is darn good compared to the industrialized world.
The reality is that Chinese consumers are continuing to spend money. While consumers are hesitant and faced with high debt burdens in the United States, the new money in China is being spent on everything from housing, to furnishing, to vehicles, to travel. In the second quarter, China’s retail sales surged an astonishing 17.7%, up from 16.3% in the first quarter. Again impressive, and following the government’s mandate to drive domestic consumption to push up growth.
The results reflect the significant growth difference between China, and the United States and Europe. China is continuing to roll along at relatively high speeds, but it must be controlled.
And, while the growth is impressive, my economic analysis is simple. The superlative GDP growth is great, but the problem is the associated inflation that often surfaces as consumers spend more…and we know spending is increasing like wildfire in China. I like the country’s move to control and lighten up the inflationary pressures. The GDP growth is a bonus.
In fact, economic growth in the Asia-Pacific region is promising, including seven percent for the developing Asian economies and a stellar 8.3% for China’s neighbor, India. You continue to have all of the ingredients in the Asia-Pacific region for above-average long-term price appreciation and we recommend capital there.
The near term poses plenty of risk, but, longer-term, I continue to favor China as a growth area for trading opportunities, but you’ll need to be careful.
The key is to be patient and maintain a longer-term view. China will continue to provide above-average price appreciation potential, but just watch for the hiccups along the way.