I downgraded the China stock market early in the year because I
felt a cost / price squeeze could develop on profit margins because
of the sharp acceleration of wage growth. Profits have held up
better than I expected as productivity gains appear to have been
relatively strong. However, the Shanghai Composite slipped into
a substantial correction, anyway, and remains with a bear profile.
Foreign investment, limited already by regulation, has been even
more limited as China took steps to curtail a major real estate boom
and head off an acceleration of inflation. I think the Chinese have
stayed clear of the stock market to pursue the residential and
commercial real estate markets which have been more rewarding.
Since the economy has been growing briskly, and tighter real estate
lending standards are in place, I think it might worth tracking the
stock market more closely again. Political tensions between the
US and China over trade issues and the value of the yuan may also
intensify in the months ahead, so it might be worthwhile to watch
the Shanghai for that reason as well.
Based upon China's long term economic performance and potential,
I still think the Shanghai should trade around the 3250 - 3500
area. It is at a sizable discount now, but has rallied some in recent
months. The link below shows a bearish chart with the market now
struggling to improve on RSI. Failure to regain postive momentum
could signal a retest of the lows seen a bit earlier in the year, but,
let's keep an eye on it.
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus 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 !!!