China Stocks

There was a long overdue but handsome long side trade in China in the latter part of
2012, but it was cut short early this year. Longer term technicals suggested that the
Shanghai Compositie could be sliding out from underneath a longer run downtrend, but
this was undermined by disappointing economic performance.

China's industrial output did accelerate over the latter part of 2012, but as I mentioned
back on Mar. 8, there was some concern production had ramped up too rapidly relative
to both internal demand and trade. That appears to have been the case particularly as
regards global trade which has been expanding very slowly. As a consequence, the
longer run record of industrial output growth for China still shows a downtrend to be
in place, despite the recent 8.9% reading for production measured yr/yr. China Production

With output growth slowing, the recovering stock market failed to take out resistance and
correction ensued. I have been thinking that China stocks are very reasonably priced even
for 7% real GDP growth, and so I was surprised at the sharpness of the correction and
the very strong focus market players have put on the trend of economic momentum. The
volatility in a still comparatively rapidly expanding economy signals muted confidence
in China's potential going forward. For now, it would appear that players like myself
have to put extra weight on shorter term economic momentum, which is not an easy thing to
do when you are a half a world away such as myself.

I have linked to the S&P China etf -- GXC.These are major companies that allow foreign
investment. This index has been in a volatile uptrend since the autumn of 2011, but note
that formidable resistance has formed up at the 77.5 level. (The Shanghai is in the top panel.)
GXC Chart & Spdr China Fact Sheet