Thursday, February 19, 2015

China: Happy Year Of The Goat

(Drivebycuriosity) - Today the Chinese celebrate New Year, the begin of the lunear "year of the goat" (wikipedia). Last year, the "year of the horse", delivered mixed results: China`s economy slowed to a growth rate of 7.4% (2013 +7.7%  reuters), but the Shanghai Composite Index, a gauge for Chinese stocks, jumped 53% in the recent 12 months. Will the goat jump as well? I think, yes.

It looks like that the China pessimism bubble of the recent years (driveby) burst last autumn. The  China stock rally has at least 4 reasons:

- A annual growth rate of 7.4% (0.3 point less than the year before) is much better than the crash the China pessimists have been announcing for years (china).
- Beijing continued reforms the government had started in 2013, including a liberation of stock trading between Hong Kong and mainland China, and announced more investments into airports, railways and other infrastructure.
- Monetary policy loosened the breaks (lower interest rates & less bank reserve i)
- Consumers & companies are benefitting from cheaper oil and other commodites

I believe that soft landing and stock market rally will continue in the year of the goat because of the ongoing reforms, cheaper commodities and a more accomodative monetary policy.

                                                           Secular Catching-Up

I am basically optimistic for China because of the secular catching-up process which is fueled by the still extreme income & wealth differences to the US and other Western nation values. The huge country is rapidly transforming into a consumer economy like the U.S. and other modern countries. Many peasants are moving to the huge metropolitan centers which are spread all over the huge country to lift their standard of living. This creates a fast rising affluent middle class, giving consumer spending a boost as the strong retail sales (growth rates around 12%) demonstrate.

China´s growth should be boosted by the technological progress and advances of Internet, automatization of industrial production and 3D-printing. These developments raise efficiency and  productivity of China´s economy as success stories like Alibaba and Baidu demonstrate.

 Happy New Year

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