China has what I like to call a "high quality problem."
The Chinese economy grew by 7.4 percent in the third quarter. This was the country's worst quarter since early 2009, but it was in line with market expectations.
STILL PRETTY GOOD
Only in China would 7.4% growth constitute a severe slowdown. I don't have to tell you that this is far above the growth rates of any other country of any real size. China may not be growing like it used to, but it's still the best show in town among major world markets.
SIGNS OF LIFE
Sentiment on China remains awful--just this past week, Coca-Cola (KO) joined the long list of Western firms blaming lackluster growth on the Chinese slowdown--but the data is mixed and showing signs of life. Releases o n fixed asset investment, retail sales and industrial output all beat expectations.
HITTING BOTTOM?
All of this rotten sentiment has translated into some pretty horrendous stock returns for Chinese investors. Chinese stocks have been in almost continuous decline for the past two years--at least up until last month.
NEW UPTREND
I recommend investors take a look at the iShares FTSE China 25 Index ETF (FXI). I like what I see here. Chinese stocks appear to be starting a new uptrend, even while sentiment towards them remains terrible.
TURNAROUND AHEAD
If the Chinese economy maybe--just maybe--doesn't end up being as sick as everyone seems to think it is and we see some signs of life in the next few months, sentiment can shift if a hurry. And when it does, I expect FXI to enjoy a quick boost.
NOT TOO SHABBY
7.4% growth in a slow-growth world isn't half bad, and eventually investors will reach the same conclusion. In the meantime, we're getting access to an index that trades at 8 times earnings and yields 2.7% in dividends. Not too shabby indeed.
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About the Author
Charles Lewis Sizemore, CFA is the founder and editor of The Sizemore Investment Letter, a monthly newsletter dedicated to finding superior investments backed by powerful macro trends. He also serves as the Chief Investment Officer of Sizemore Capital Management LLC, a registered investment advisor.
Sizemore has been a repeat guest on Fox Business News, has been quoted in Barron’s Magazine, The Wall Street Journal and The Washington Post, is a contributor to Forbes Moneybuilder.
He is also the co-author, along with Douglas C. Robinson, of Boom or Bust: Understanding and Profiting from a Changing Consumer Economy (iUniverse, 2008).
Sizemore holds a master’s degree in Finance and Accounting from the London School of Economics in the United Kingdom.
Prior to founding The Sizemore Investment Letter, Mr. Sizemore worked alongside best-selling financial author and economic strategist Harry S. Dent, Jr. in creating original research on the effects of changing global demographics on asset returns and economic growth and was a regular contributor to the HS Dent Forecast monthly newsletter and the HS Dent Blog—one of the most widely read financial blogs in the world.
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