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China: Don’t Lose Sight Of Relentless Long-Term Growth

  • Written by Syndicated Publisher No Comments Comments
    March 11, 2014

    The world’s focus has been on China’s slowing economy over the last few years. Given its huge population and importance as a consumer of the world’s goods, as well as the holder of a large amount of U.S. bonds and other debt, concerns are that a hard landing in China would have a devastating effect on the economies of the rest of the world.

    There is no doubt that China’s economic growth is slowing.

    China GDP Annual Growth Rate

    And the economic reports have been getting worse in recent months, slowing manufacturing, slowing exports. The situation has had China’s previous surging stock market in a serious bear market, unable to recover from the global meltdown of 2008. (Slowing economies do have an effect on stock markets).


    However, in the big picture, China’s spectacular growth path toward catching and surpassing the U.S. to become the world’s largest economy continues.

    The reason of course is that while China’s annual economic growth rate (GDP) has slowed from double-digits in 2010 to under 7%, it remains well above the rest of the world, and in particular the anemic 2% growth rate of the U.S. and Europe.

    As a result, China’s economy, which just caught up to and passed Japan to become the world’s second largest economy in 2010, already has an economy that has grown further and is two times the size of Japan’s.

    When will it catch up to the U.S.? Estimates vary from as soon as 2016 (OECD) to 2028 (Centre for Economic and Business Research). Why so great a disparity? Apparently, it’s difficult to compare economies using different currencies with wide differences in the purchasing power of their population.

    But no matter how you cut it, in the long-term China continues to come on.

    Fears that its slowdown to 7% growth or less may affect global economies is real.

    But if it slows their growth rates it only increases the pace at which it overtakes or surpasses then (as witness the degree to which, in spite of its own slowing economy, China has surpassed Japan since catching up to it just three years years ago.

    Important Anniversaries.

    The bull market will reach its 5th birthday on Monday. The 2007-2009 bear market bottomed on March 9, 2009. The bull market began on March 10.

    Next week, March 15, will also mark the 6th anniversary of the collapse of Bear Stearns in 2008, which triggered the realization that a financial collapse was underway.

    Is the Nasdaq at least short-term overbought?

    I know. It’s the hottest sector of the market, and has been the hottest index through the entire bull market. A Barron’s article this morning is titled ‘Next Stop Nasdaq 5000’.

    But has it gotten ahead of itself in the excitement again, and due for another short-term setback? 4200 before 5000?


    Other Voices:

    MarketWatch: “Richard Fisher, president of the Federal Reserve Bank of Dallas, on Wednesday said he was concerned about “eye-popping levels” of some stock market metrics, and said the central bank has to monitor the signs carefully to make sure another bubble isn’t forming. In his speech in Mexico City, Fisher said some indicators like the price-to-projected forward earnings, price-to-sales ratios and market capitalization as a percentage of GDP, are at levels not seen since the dot-com boom of the late 1990s. He noted that margin debt is pushing up against all-time records. “We must monitor these indicators very carefully so as to ensure that the ghost of ‘irrational exuberance’ does not haunt us again,”

    Barron’s, Rashma Kapadia: “Mutual-fund investors have long had a reputation for joining the party too late, and a recent analysis of fund flows over the past decade does little to disprove that perception. . . . . According to Vanguard’s Investment Strategy Group, for the strongest part of this bull market — from 2009 through 2012 — most investors were still skittish about stocks. But they poured $62 billion into U.S. equity funds last year, and another $9 billion so far this year. At the end of 2013, investors’ global equity allocation hit 58%, more than its 20-year median of 50% and close to a peak, in part because of the strong run in stocks, according to Vanguard.”

    To read my weekend newspaper column click here:   Safe Havens Are Trouncing Stocks So Far This Year

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    In addition to the charts and signals in the ‘premium content’ area of this blog, the new issue of the newsletter will be in your secure area of the Street Smart Report website on Wednesday.

    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more. 


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