China Stocks Deserve A Look
There were no fireworks at last week’s China summit of the finance ministers and central bankers of the world’s 20 biggest economies; it was a tame and mostly uneventful affair. Most significantly, China assured the participants that their economic growth strategy doesn’t hinge on the devaluation of their currency. Shortly after the meeting’s conclusion, the People’s Bank of China cut reserve requirements, which should deliver some economic stimulus and prolong the current real-estate expansion. We reiterate that while we see eventual problems in an over-leveraged Chinese financial system, those problems are some ways off — and in the meantime, the world’s second-largest economy is far from recession, in spite of irrational fears. China’s economy is growing at about 5 to 6 percent, stocks are cheap, and we may be surprised how well the Chinese market does in the next few months. Deflation fear is ending as materials and oil prices are bouncing up, leading to even faster GDP growth in China.