Five Viewpoints: Is China A Buy Right Now?


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Chinese stocks fell 6 percent last night and are now in a bear market. Newspaper articles are raising concerns about overextended debt and falling growth rates. Looking out over the next three years, is now a good time to buy Chinese exposure?

IndexUniverse asked five macroeconomists and asset allocators for their viewpoints. Their answers are listed below.

Dennis Gartman
Editor, Publisher
The Gartman Letter

Yes, It's Time To Buy

Is it time to buy China? At this point, I think the answer is yes, though not a resounding yes; not a vehement, unmitigated, unhedged yes, but yes nonetheless. I could not care whether the market is down 20 percent from its high in supposed 'official' bear market territory, for I've never been one to assume that rigid rules such as this have a place in the world of investment.

The question is, Have the authorities lost control of the circumstances in China? We think not. In fact, I think that the nonaction taken by the Chinese monetary [authorities] … and obviously the acquiescence of the newly in-place political authorities … was a warning shot across the bow of the economic ship there, telling the market and especially those in the housing and/or commercial real estate markets that they cannot believe unequivocally that the government will be there to bail them out of uncomfortable and uneconomic situations.

The People's Bank of China has made it clear that there are indeed consequences to be suffered should investors become overextended. This, I think, is a very good thing.

So the weakness of the past several weeks is very probably an opportunity into which to become involved in China once again, for I've stood aside from the global equity market since February and now have dry powder to put to use. I'll put it to work firstly in China.

[ Tyler Mordy's opinion is next.]

Bill Witherell
Chief Global Economist
Cumberland Advisors

Limit Your Exposure For Now

China stocks have been hit by the tightening in China's credit markets at a time when global markets are still reacting to concerns that the U.S. Federal Reserve is going to reduce its injections of capital sooner than some expected. A broad retreat from emerging markets was underway before these developments in China. I see the moves by the Chinese Central Bank as being good for the long-term sustainability of the Chinese economy.

The People's Bank of China needed to let some air out of the credit market bubble and impose some increased market discipline. There is no overall shortage of funds and the People's Bank is able and ready to provide liquidity to any banks experiencing funding problems. The immediate sharp market reaction reflects fears that economic growth will be impacted; that is, indeed, a risk and growth had already been moderating. My expectation, however, is that any negative economic effects will be limited and transitory. Addressing financial problems now should be a positive for the economy and China equities over the next three years. The current pullback in the China market does appear to be a buying opportunity, although it would be wise to wait for markets to settle down.

Among the China ETFs , we would prefer to limit our exposure to Chinese financial institutions at this time. In our International and Global Multi-Asset Class portfolios, we presently hold PowerShares Golden Dragon China (NYSEArca:PGJ), for which financials account for only 1.47 percent of the holdings; and Guggenheim China Small Cap, (NYSEArca:HAO), with a financials share of 2.48 percent. In contrast, the iShares FTSE China 25 (NYSEArca:FXI), includes 56.59 percent of its holdings in financials.

Paul Dietrich Don't forget to check's ETF Data section.

Copyright ® 2013 IndexUniverse LLC . All Rights Reserved.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing ETFs
Referenced Stocks: FXI , FXP , HAO , PGJ , VGK

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