I’m not sure if you have noticed, but we have been seeing a ratcheting up of Chinese stocks since early February. It’s amazing what a week-long holiday break will do. Just take a look at China.
The Shanghai Composite Index (SCI) is trading just over the key 3,000-point level. The SCI is also up a healthy 6.94% in 2011, better comparatively than the key U.S. indices such as the S&P 500, DOW and even the growth indices in the NASDAQ and Russell 2000.
On the chart, the SCI is trading above both its 20-day and 50-day moving averages, which is bullish. And there appears to be additional gains going forward.
This is encouraging given the SCI weakness in 2010.
In an investment newsletter I write called China Investment Letter, I have long been a bull of Chinese stocks listed in China and as ADRs in the United States. I’m a big believer in boosting up your overall returns by adding Chinese penny stocks and micro-cap stocks.
There has been a rise in analysts and media types who are saying that China is due for a correction and stocks are overvalued there. If you take a look at the comparative valuations, Chinese stocks are much cheaper than U.S. stocks. Chinese stocks attract a lower valuation due to the higher risk of operating in China.
At this juncture, we are seeing renewed buying of commodities by the Chinese. Whether it is gold, silver, copper, corn, wheat, cotton or other commodities, the country has a massive appetite for commodities and will continue to look globally for these.
All you have to do is to just think about the sheer size of the country’s middle class, which is mind-boggling and clearly reflects the amazing potential in China. The World Bank estimates that, within five years, there will be 542 million middle-class consumers in China. Yet that may be conservative, as I have seen top-line estimates at around 700 million.
Did you know there are over 800 million cell phone users in China? Just imagine the potential for wireless companies.
How about the largest networks of high-speed tracks in the world where trains can travel at close to 400 kilometers an hour and even more? Imagine the need for concrete, steel, and trains?
China is also expected to add over 2,000 planes over the next few decades. The Boeing Company (NYSE/BA) just signed a new $10.0-billion deal to supply planes to China and currently has about half of the Chinese aviation market.
Clearly, China is on the right path into developing into a superlative world economic power as well as a basin for incredible and sustained growth across many sectors, including industrial, mining, energy, services, and technology. The reality is that, if it is saleable and in demand, then you know that China will likely have the consumer market for it.