Is China A Problem or An Opportunity?
Chinese GDP growth has slowed to approximately 7% according to their government figures. Many commentators believe it is slower than that, but the chart above from Strategas suggests that the best indicator of GDP growth is Nonmanufacturing Purchasing Managers Index (A gauge for China's internal consumption versus exports). This index confirms the 7% rate, though the trajectory of growth is downward.
Volatility in the Chinese markets has investors worried about a "hard landing" for their economy. Oddly, when those markets were surging earlier this year, very few investors thought that indicated a better economic outlook.
Chinese markets are (effectively) a government controlled experiment and subject to the swings you tend to see in undeveloped markets. We do not believe weakness in those markets portends a hard landing for the economy. Government actions to lower rates and stimulate the economy are likely to work, though they may take time to gain traction.
Underlying demand for middle class products like phones, health care, autos and efficient savings mechanisms are likely to continue growing. Our strategy is underweight the Emerging Market space, as many of them are dependent on commodities prices. Within the EMs, our focus is on stocks benefitting from the growth in middle class spending. Many of those are in China and India. We are underexposed to the areas dependent on commodity pricing, like Latin America.
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