About Me

Retired chief investment officer and former NYSE firm partner with 40 years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Wednesday, July 11, 2012

Shanghai Stocks -- It's Been A Tough Go

My view since early 2011 was that tight money in China would slow the economy but shake out
inflation, thus leading to a more relaxed monetary regimen and a powerful recovery for the
Shanghai Comp. I initially thought the rally would come in Half 2 '11, but after watching the
PBOC keep the squeeze on over the course of the year, it became apparent no decent rally would
be in store until year's end. I used the FXI index fund to play the rally in late 2011 and made some
money, but players have continued to wring out the market in the wake of the advance early in the
year. $SSEC Chart

From a trading standpoint, watching the China market was barely worth the time. Now, we have
the PBOC in easing mode with liquidity and lending responding positively and we have a cheap
market at around 10X earnings. The market is oversold. It has yet to turn, but it is back on my
watch list as a long.

What I learned following China carefully over the last 18 months is that my style of monetary /
economic analysis works there, but, as with so many other markets, fundamentals, even if done
reasonably well, often do not help with timing.

To squeeze down inflation and shut off a speculative real estate boom, the PBOC took yr/yr
broad money growth down from 30% to 12.5% before easing up. This cut inflation from 6.5%
down to 2.2%, but production growth was slashed from nearly 20% yr/yr to less than 10%.
China's economy boat is obviously big enough now that it takes more time to turn it around.

My Western style analytical approach now tickets China's economy to re-accelerate positively
in the autumn of this year. I see enough skepticism in the market and in the global economic
media that I am not likely to initiate a new long position until the technicals turn. If  the Boyz
Of Beijing can pull off a moderate re-ignition of growth this year, the Shanghai Composite
could add at least 30% through mid-2013. So, I'll be happy to watch along.

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