Wednesday, August 31, 2011

Where's China Heading

The Chinese economy is approaching a fork in the road.  On the one side, there is a very positive outlook. Global market analysts are swinging from a fearful stance to a very bullish, optimistic outlook. And the Chinese government is well armed and prepared to fight inflation and stabilizing growth. Both of these factors have caused a recent spike in the Chinese markets.

However, Fitch has warned of pending doom in the Chinese housing market. And, the end of the commodity boom and high growth era threaten those business that built to handle historic capacity demands.

Thus we are left in a situation where we have very good short-term news to spur a rebound in the recent downturn to China, and a very poor long-term outlook as China continues to face growing pains and the resulting problems.

But, this does not mean China is going to rally over the next month or two then begin a long-decline. For investors, they should actually do the exact opposite.

Investors are going to need to be very cautious of developments to major Chinese industries over the next few months. As the developments in each industry play out, the story will become clearer. It is likely some industries are going to face steep uphill battles, while others will cruise to success.

In the long-term, Investors that remain fearful are going to miss out on great opportunities in the Chinese markets. Its not going to be all rosy and happy, but the Chinese market is poised to outperform US and European markets over the next few years.

So, lets not charge into anything quite yet. Over the next month or two the Chinese economic story is going to unfold and begin to tell investors where to enter the market. However, if you must enter China. Stay well diversified and look mainly at blue chips.

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