Discovering the Truth about China’s Economy

Through trading markets, I have found that much of what you read in the press is nowhere near the truth.

You’re often reading a biased opinion that differs from the reality on the ground.

How can one get to the truth of any matter?

Well, it’s quite easy if you can bring up a relevant chart.

For example, if some well-known fund manager is predicting a US recession, I might bring up a chart of a US Real Estate Investment Trust (REIT) exchange-traded fund (ETF). That will tell me whether rents are rising or falling, informing me of any imminent recession.

I might also look at charts of US homebuilder ETFs. If they’re breaking higher (and they are), you can forget about a US recession this year. The weight of money is telling you otherwise. It’s telling you revenues are improving.

It staggers me that no one else does this. That is, read the economy through the charts.

Here’s an example to further illustrate this point.

There’s probably no other subject where misconceptions abound more than with the state of China’s economy.

It’s hard to get a handle on what’s going on there. Much of the media reports are negative. You’ll read all about the shadow banking time bomb, the debts, and how the country is full of ghost cities.

All the predictions over the past few years have penned China as being on the verge of economic collapse.

An article from equity analysts TheStreet in March last year reported that the Chinese stock market was on the brink of collapse, advising investors to sell before it was too late.

Then, in April, well-known billionaire investor George Soros warned that China was on the brink of a financial crisis similar to the US in 2008.

In July, financial website MarketWatch quoted Andy Xie — formerly a top economist at the World Bank and Morgan Stanley — who warned that China was about to implode, and that it was heading for a 1929-style depression.

In the same month came probably the most alarming report of all from The Australian. They compiled the opinion of all the top experts on the Chinese economy.

The verdict? It was unanimous: A recession was almost inevitable; it would be sharp and possibly calamitous, or drawn out like Japan’s.

And as recently as February this year, The Epoch Times quoted long-time China bear Gordon Chang, who claimed China was about to go into freefall, and that it had passed the point of no return.

Is this the reality on the ground?

The way to find the truth is to bring up a relevant chart, and then date the news to the chart.

This is the weekly chart of the SPDR S&P China ETF [NYSEArca:GXC].

This ETF tracks the S&P China BMI Index, which gives a broad exposure to the Chinese market…

chinese market
Source: Optuma
[Click to enlarge]

With every dire prediction, the chart continued to find higher support.

Interesting, is it not?

It’s only now that the data is coming out to justify the movement in the chart.

In March, Bloomberg reported that manufacturing numbers in China were hitting five-year highs.

There’s always scepticism about the official numbers, but the unofficial data, like the China Satellite Manufacturing Index, was backing up the official government data.

The gauge published by San Francisco-based SpaceKnow Inc. uses commercial satellite imagery to monitor activity across thousands of Chinese industrial sites; the index put in its best reading in five years.

What’s more, all the recent data confirms China’s factory output continues to grow, and that retail sales are surging.

Second-quarter GDP came in this month at 6.9%; that’s an uptick from the 6.7% recorded last year.

Bloomberg reported only yesterday on a whole array of indicators and business surveys that suggest China’s economy continues to power on.

And their digital economy is booming, serving as a major engine for the country’s economic growth.

Despite all the predictions over the last few years that China’s economy was on the verge of imminent collapse, not only is China’s economy holding up, it’s strengthening.

But the chart has been telling you that for well over a year now, if you can read it. The improving China numbers only coming out now were known long ago.

The Chinese ‘hard landing’ story we keep hearing so much about hasn’t run to script.

The world’s second-largest economy continues to confound expectations for a collapse, despite all the dire warnings from experts and analysts.

Chinese ETFs have been on the march this year. GXC is up 32% this year alone.

At Money Morning Trader, we use our chart reading skills to identify individual stocks that are likely to move.

But, as I’ve briefly shown in this example, you can use your chart-reading skills to get to the truth on any matter you read about. As long as you can bring up a relevant chart.

It is the only way you can free yourself from all the misinformation you read.

If getting to the truth and reading the economy through the charts is something you want to learn more about, go here to find out more.


Terence Duffy,
For Markets & Money

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come — which he details in Cycles, Trends and Forecasts.

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