Waiting on China

Founder and Publisher of the Switzer Report
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I have purposely delayed finishing and then filing my blog for the Switzer Super Report until lunchtime, Monday, because I was keen to see how the Chinese economic data turned out. It was my view that worst than expected GDP, specifically, and retail figures generally, would add to a worsening outlook for the most important economy for world demand and therefore global growth.

In Saturday’s report, I made the point that the tug-of-war, which the stock market has become, is due to the positivity of the USA’s recovery and the negativity of a slowing Chinese economy.

But let me advise that generally I don’t care about these more short-term market matters – I usually take the long view on my investments and it also makes me a contrarian on many occasions.

However, if we could be facing a sell-off, I might play the timing game, which can provide you and I with a better buying opportunity.

So, why a sell-off? Bad China numbers could spook markets in the short-term but then there is the other view that a crook result would force China’s hand to ease up on monetary tightening.

This would help stocks eventually but I suspect the knee-jerk result will be a stock-slide and therein lies the buying opportunity.

So, what was the reading?

Up 7.5% was the quarter two number for the yearwith the actual quarterly number a little softer, but stocks started to rise on the news and the dollar went up as well. Now there could be some who will argue that the Chinese authorities have massaged the figures but the reality is, the official number denies the doomsday merchants, who were predicting really bad news.

Barclay’s economist, Yiping Huang thinks a “hard landing” is coming and a China-induced global recession is likely, but these big call merchants are more wrong than they are right – the media remembers the good tips but forgets the bad ones!

Back to the data, retail in China was up 13.3% against a Reuters’ consensus number of 12.9% and the upshot is that reports of China’s demise as an economic powerhouse have been greatly exaggerated.

In summary, it was not a loss or a victory in China with this data contest but let’s call it a draw. I can’t see a big stock dumping because of these numbers and so the USA’s likely ride up on good earnings, as well as technical readings where an old resistance level – 1,575 on the S&P 500 has now become a support level, which is called a change in polarity – makes me suspect stocks are heading up until we get some new left-field event, which of course we, at the Switzer Super Report, will be looking out for, with you in mind.

By the way, some experts say this quarter is the one that will be the slowest for the year, so I say, “Go China!”

P.S. I will keep watching China like a Labrador in a butcher’s shop because this is the big make or break issue for stocks long-term.

P.S.S Bears will try to look for bad news in this OK China data and some ordinary statistical pictures will be there, but remember, the bears were canvassing a 7.2% number, which could even have been a ‘6.something’ figure. I think they’re growling up the wrong tree but that won’t let me be complacent. I’m on China watch — big time!

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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