This Special Report; Trade War! Trade War! gives you my recommendations for what to sell, where to take profits, and where to trim as seen through the lens of a likely global trade war. Here are my choices with my first 3 sells
Moody’s Investors Service cut its outlook for Chinese sovereign bonds to negative from stable today, December 5. The rating company kept tws long-term rating on China’s government bonds at A1. You don’t have to be a forensic accountant to see what worries Moody’s.
Anyone who has followed China’s economy or invested in the country’s stocks is righty skeptical of all of the country’s economic data. The GDP growth numbers, for example, always seem to come in near target even when other measures show that the economy has hit a pothole. But right now, when the country faces a huge employment crisis and millions of migrant workers have no jobs and no safety net and millions of recent college graduates can’t find work, we know that the official numbers are a crock of chicken manure. And how do we know this? Because the Chinese government tells us so.
Today’s Trend of the Week is India is the New China–in investing terms. Companies are looking to India for better prices and as a means of side-stepping the China and U.S. technology trade wars. For example, Apple is openly looking for suppliers in India, or asking suppliers to move from China to India, and other companies are following the path as well. Moody’s forecasts India’s GDP growth at 6% to 6.3% this year. I have two suggestions to get in on this trend. The first is the iShares MSCI India ETF, (INDA), which is up 5% year to date, but up 10-11% in the last three months. The other option is HDFC Bank, (HDB), much more volatile that the ETF, but also up 5% year to date and up 8% in the last three months. HDFC Bank is the biggest credit card issuer in India, with 28-29% market share. As wealth in India grows, more and more consumers are getting credit cards for the first time. HDFC also offers alternative platforms and payment technology that will also let the bank ride the technology wave in India’s financial sector. I don’t feel overly enthusiastic about investing in India as a whole. The country has an incredible, increasing reliance on coal, and the economy is riddled with special deals that favor family-run conglomerates with ties to the government. Buying the whole Megillah makes me a little leery, but I like INDA and HDB to get in on sentiment that sees India as the new China for investments.
Chinese President Xi Jinping has centralized more power in his hands than any of his immediate predecessors. He’s certainly going to be able to pursue his goal of restoring China to its rightful place in the world economic and political order for the rest of his term–and beyond–without significant opposition. Expect an even more assertive China.
On the one hand, the results of the 19th Communist Party Congress that begins tomorrow are completely predictable. President Xi Jinping will be elected to a new five-year term and when the dust has cleared from the once-every-five-years turnover of party leaders, he will have tightened his grip on power still further. On the other hand, there’s huge uncertainty over what Xi will do with his power during the next five years.
Standard & Poor’s lowered its credit rating on China’s sovereign debt by one step to A+ yesterday. The cut is the first ratings reduction since 1999. S&P cited the risks from the growing debt levels in China’s government and corporate sector as grounds for the lower rating.
On Sunday the Chinese government announced that the headline Consumer Price Index (CPI)rose at a year over year rate of 1.8%. Economists had expected a 1.6% increase. The August rate was the fastest pace since January. Core CPI, that is without the effect of volatile prices for energy and food, rose at a 2.2% year over year rate.
Add China to the list of those markets (oil being another example) where rhetoric is more important for setting market direction than data. Yesterday the Chinese government released generally disappointing economic numbers. Industrial output, for example, rose by 6.5% in April from April 2016. Economists were expecting growth of 7%.
