Like Simon and Sting, Is China Ready For Its Solo Act?
Like Simon and Garfunkel and The Police, China and the U.S. once made some beautiful music together. We bought their cheap socks, they put up with our whining backstage about their pegged currency and Communism.
To illustrate just how in bed both our economies were and still are, take a gander at the iShares FTSE/XINHUA China 25 Index Fund vs. the S&P 500 over the last 12 months. Both are down exactly 46 percent.
But is China ready for its own great solo career, ala Paul Simon and Sting? Going by today's action, the answer may be yes. Shares are jumping after a gauge of Chinese manufacturing showed improvement for a third month in a row. Also, there is speculation that Premier Wen Jiabao will announce a whopping stimulus plan tomorrow.
"Today's China PMI backs up our view that Chinese GDP growth is more resilient than growth in the rest of the world and that China has to lead the global economy out of recession," opines Credit Suisse Equity Strategist Andrew Garthwaite, in a note to clients this morning. Plus, "the Chinese banking system appears to be fundamentally sound," he adds.
Now how do you play it? Tim Seymour, FM trader and managing partner at Seygem Asset Management, will try to help you with that tonight. Garthwaite cautions though that the Chinese consumer and economy is tough to play directly through U.S. stocks, so the question to Tim will be whether an ETF like the one mentioned above is the best way to get the job done.
But also remember, this trading conversation is not for those with thin trading accounts and tin ears. I think Paul Simon and Sting went on to win Grammys, but Mick Jagger struggled with his solo projects. You can be really good, but still need a partner to make truly great rock n' roll again. (And if there is an economy looking as haggard as Keith Richards, it's ours.)
Many folks argued the 'decoupling' theory once before a couple years ago and you see how that turned out. So maybe that means we are seeing a Bruce Springsteen-type act out of China right now. Some solid gains and albums, but ultimately there will be a triumphant return back to the original band. If that's the case, maybe China's recent good fortune is another reason to believe the bottom is near for our own market.
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