If you're thinking about China investing again, HSBC released
its survey of purchasing managers in China's manufacturing sector
on Tuesday night with, shock, a
twelfth-straight month of contraction
.
The index rose slightly to 49.1 from 47.9 reported in September
but still came in below the important demarcation of 50.0 that
signals expansion in the sector.
Not all was rain-clouds though. New orders were reported at a
six-month high of 49.7 and exports showing an upward trend to a
five-month high. This is after the country reported a rise of
9.2% in industrial production for the month of September, up from
8.9% in August and beating analyst expectations.
Beyond some planned infrastructure spending this summer and a
hastened approval process for new projects, the government has
been fairly quiet on monetary or fiscal stimulus since its last
cut to the reserve requirement in May. The move followed several
cuts to banks' required reserves ratio and two interest rate
cuts.
Many have been forecasting more cuts but warned that the
government may be
too focused on keeping inflation low to move
aggressively
. While consumer inflation has ticked up lately to 1.9%, it is
still well below the government's target of 4%. More likely is
that the government is holding off on larger-scale stimulus until
the once-in-a-decade transition of power which should take place
towards the end of this month.
While I generally do not like trying to call a major
inflection point in a market, I think those interested in China
investing can make a reasonable bet on strength over the next few
months. Production and investment data have already started to
show positive momentum and the manufacturing surveys are hovering
just below 50. Any new stimulus programs by the new government
could be the final shot needed to jump-start the economy and make
China investing attractive again. Further, any reading above 50.0
in the manufacturing survey will be an important boost to
sentiment and should be good for a quick jump in asset
prices.
While shares of the iShares FTSE China 25 ETF (
FXI
,
quote
) have rebounded 23% off the 52-week low of $32.21 last October,
they are still well off recent highs and trade for just 8 times
trailing earnings of the stocks held in the fund.
The government has made it an explicit goal to favor
consumption in the economy and transition from an export model.
The Global X China Consumer ETF (
CHIQ
,
quote
) invests at least 80% of its assets in consumer companies that
are either domiciled in, or whose revenues are primarily from
China.
Focus Media Holdings (
FMCN
,
quote
) operates a liquid crystal display network of digital
advertising in China. As of 2011, the company had approximately
170,000 LCD displays in about 95,000 commercial buildings in 90
cities. Shares are flat over the last twelve months but well off
the low of $18.00 set earlier this year. The stock trades at 16.5
times trailing earnings but pays a 2.0% dividend.
