In previous posts, I’ve described why the economic course of action China has adopted is brilliant – the country’s only real option is to fight the urge to take drastic (and potentially damaging) policy measures. I discussed this is a previous post called China’s Catch-22. An avid fan of democracy, I do have to admit that a political system that actually allows the government to ‘manage‘ its affairs has its advantages. Just like in everyday life, often the wisest course of action is to simply be patient. A virtue we all learn much too late in life.
In the short-term, you would think that all this worry would impact investor sentiment and it surely has. This chart illustrates that in a very short period of time that the investing community, or at least a sample of 238 funds polled by BofA Merrill Lynch in July (managing a combined $643 billion), has grown extremely anxious about the prospects for the Chinese economy and how it might affect global markets.
I can’t count how many times (in print media, television or in this Website) I’ve demonstrated that poor investor sentiment about a security, an asset class or a country almost always indicates an opportunity to “do-the-opposite” and make money. For instance, on May 29th my article High Consumer Confidence is bad news for stock market! is evidence (again) that the inverse is just as true – when sentiment seems too good, it usually is too good. The summer correction followed almost immediately.
The really smart money is always those in the survey who are outliers – they carry no weight and therefore don’t influence the summary statistics. This is why data must always be examined with a grain of salt. What are they doing with their cash? Read this quote:
BEIJING | Wed Jul 17, 2013 1:23am EDT
(Reuters) – Foreign direct investment in China in June jumped 20.12 percent from a year ago, the Commerce Ministry said, the quickest gain since March 2011, showing that investors are still confident about the world’s second-largest economy even as growth slows.
Negative consensus sentiment (emotional) combined with evidence of smart investor (minority) money flows is what I call an opportunity-in-your-face. I forewarned about the market correction – and recommended buying back once summer was underway. That ship may have sailed, but there are also times when market leadership shifts behind the averages.
I’m on record believing that China will be the next big surprise! And China needs resources. Energy, copper, fertilizer and in due course even iron ore will enjoy a cyclical bounce – and the stocks. Strength in the oil patch seems ignited already. But should one bet on China now or wait until September (historically the worst month of the year and thus the cheapest entry point for buyers?) Hard to decide admittedly, but the U.S. market seems long in the tooth (again) and China’s economy isn’t necessarily slowing…it may be done slowing (i.e. did slow – past tense) which is reflected in the recent data. Maybe China’s growth is poised to strike – like a snake in the grass in the year of the snake.