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China and Emerging Markets

Posted by jdavis on February 22, 2014

There's been a lot of press and media comment recently on China's manufacturing data and overall economic activity.

We discussed Emerging Markets' shares' investing in our December 2013 update.  Click to peruse.  (EMs include also Russia, Brazil, India etc. as well as China.)

Recent economic data signals "contraction" or, at least, reduced growth and makes people question just how much the country really is growing. Yes, there has been a slowdown. Yes, the data is fuzzy and maybe even has been massaged. (Perish the thought…)

Whether economic growth is as high as official numbers suggest misses the point, as China is almost certainly outpacing sluggish growth in the U.S., Japan, the UK and Europe.   The prices of China Debt funds suggest there is no real strains or concerns – as seen by the global financial community.  In other words, the negative narrative does not agree with the price of financial assets.

China makes up some 20% of the Emerging Markets’ share indices.
Sentiment on Emerging Markets is hugely negative – look at the BBC2 piece last week (Will China Shake The World Again by the BBC's Robert Peston), and everyone seems to be of the opinion that nothing will make it better.   As China goes, so too will broader emerging markets and commodities, from an investment point of view.

The funny thing is the Chinese stock market has vastly underperformed Developed Market stocks for the better part of three years.   At some point, one needs to ask whether the price is wrong, especially when the market is so ‘hated’.
More people think an imminent crash in China and EMs is coming.   If everyone is saying that, then normally the opposite occurs.

Would you rather invest for the next 30% upside move in Western stocks that everyone loves, or Emerging Markets like China which everyone hates?

From an economic and political point of view, China has the capacity to implode.  However, there is 'blood on the streets' investments-wise.  Good time to buy...?

"Buy when there is blood on the streets" by Baron Rothschild

We’re currently invested in Emerging Markets.


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