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.
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
opinion is next.]
Chief Global Economist
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
Among the China
, 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.
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