China’s Economic Woes Go Mainstream

Maybe China’s economy will be alright after all. At least for the next few months, anyway. We’re beginning to feel a little uneasy about the ‘China crash’ scenario, given it’s become a mainstream story lately. Recent currency volatility (which we wrote about yesterday) and stories about rationing credit to the property sector have elicited quite a few worried articles from the mainstream media in recent days.

The latest is from Max Walsh at the Financial Review, under the headline, ‘Is China headed for a hard landing? He speculates that while China helped us sail through the GFC, it might drag us down during the next downturn.

Max then goes on to cite a fund manager survey conducted by Merrill Lynch which says that in February, the biggest concern for 46% of respondents was a hard landing in China, up from 26% in December.

That’s obviously a reflection of China’s perilous credit bubble getting greater public attention, as its myriad problems become too hard to ignore. But it also shows that concerns over China’s economy are not on the loony fringe anymore.

The real question is, while fund managers might be concerned, are they actually doing anything about it? Well, if you follow the money, the answer is, no they’re not. They’re going long stocks. That is, they’re certainly not selling on concerns over China. They’re heading to ‘safety’…large US multinationals that will apparently offer a safe haven in the event of a greater than expected China slowdown. Right…

Or perhaps they’re just betting that China will renege on its reform agenda if things get too hairy, and turn on the credit taps again. We don’t know about that line of thinking. The credit taps are still open, they were never turned off at all. And reform? What reform? There’s been plenty of talk but little in the way of action.

The way we see it, China’s credit bubble is losing steam under its own weight, with very little input from the authorities. But with the whole China thing now becoming a mainstream issue, we’ll leave it alone for a while. For that you’re no doubt thankful…


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Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing. He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’. Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors. And, through the process of confirmation bias, you tend to sift the information that you agree with. As a result, you reinforce your biases. This gives you the impression that you know what is going on. But really, you don’t know. No one does. The world is far too complex to understand. When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases. Greg puts this philosophy into action as the Editor of Crisis & Opportunity. He sees opportunities in crises. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines charting analysis with more conventional valuation analysis. Charting is important because it contains no opinions or emotions. Combine that with traditional stock analysis, and you have a robust stock selection strategy. With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the same mistakes that most private investors do every time they buy a stock. To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Markets & Money here. And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here. Official websites and financial e-letters Greg writes for:

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