China Pessimism Bubble: Don´t Believe JP Morgan

(Drivebycuriosity) - This week China`s stock index (Shanghai Composite Index) dropped 1.5% (bloomberg). This is another evidence for the ongoing China pessimism bubble (driveby). On Wednesday JP Morgan had cut China to underweight (bloomberg). The US bank referred to an alleged "economic slowdown and potential policy disappointment from a Communist Party meeting in November".

The economic data don´t justify this pessimism, quite the contrary. Today we learned that China’s economy grew at an annual rate of 7.8% in the third quarter, accelerating from the second quarter's 7.5% increase (bloomberg). We also got news that China`s industrial production advanced in September by 10.2 %,  while retail sales gained 13.3%. There is no sign of any slowdown.

In spite of the solid growth economic China´s stock market is still down 3% year-to-date and around 30% below its temporary peak in July 2009. China bears like New York Times columnist Krugman and Jim Chanos, a hedge fund manager and notorious short seller, have been banging the "China crash drum" for years (driveby). JP Morgan´s downgrade is just the newest episode of this China bashing. The majority of fund managers and other professional portfolio managers seems still to believe the China bashers.

The China pessimism bubble is a chance for investors. I reckon that the low valuation and the backlog compared to US & European stock markets (S&P 500 on all-time high) are an invitation to invest in Chinese stocks.