Friday, February 17, 2012

China saves the world

When my Asset Inflation-Deflation Trend Model flashed an asset inflation signal on February 6, 2012 to buy high beta and high octane inflation hedge and emerging market stocks, the major risk to the bullish forecast was a Chinese hard landing. One of the key indicators that I was watching at the time was the Shanghai Composite, which had been in a well-defined downtrend.

All that has changed. Since I wrote those words in early February, the Shanghai Composite has managed to stage a rally through the downtrend, signaling that China's hard landing scenario is becoming less likely.

Indeed, Reuters reported the PBoC indicated that it is prepared to ease policy gradually in order to keep inflation in check:
In its monetary policy implemention report for the fourth quarter of 2011, the central bank said it will use a mix of policy tools, including interest rates, to maintain reasonable credit growth while keeping a lid on inflation.
Next door in Hong Kong, the Hang Seng Index has already rallied through its downtrend line and the 200-day moving average at about the same time, which is another signal of global healing and recovery.

Now that both the Shanghai Composite and Hang Seng Index have rallied through their respective downtrend lines and the fundamentals are becoming more positive, it seems that China is in the process of confirming the global bull move in risky assets. In fact, it's saving the world as it indicated that it would continue to buy euro denominated debt, which it said it would do once the Europeans got their act together (and it is in the Chinese self-interest as Europe is a major export market).

These developments confirm my recent observations that we are seeing a intermediate term bull market in stocks and risky asssets.

So party on and let's rock 'n roll!

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.