#$pek

[mitchzacks]

Flagging Faith in Emerging Markets

Demand across many Emerging Markets has fallen over the last year plus, and weakening economic growth has led to $1 trillion in capital outflows over the past 13 months. This represents roughly double the amount that fled during the financial crisis, and it reflects investors decreasing appetite for higher risk investments in those areas. 

Weakening currencies and falling commodities prices are to blame, and investors are simply reallocating towards safer shores, such as the U.S. equities markets. Emerging Markets aren’t dead, just slowing, and they are certainly not the engine for global growth that they were during the 2003 – 2007 economic expansion. 

But that’s ok—the developed world is pulling them along, albeit at a slower pace than recent memory.

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[etfalpha]

China May Official PMI Seen Colourless: Stimulus Measures Ineffective?

China May Official PMI Seen Colourless: Stimulus Measures Ineffective?

“China’s factories struggled to expand in May despite recent interest rate cuts and other policy stimulus, a Reuters poll showed, suggesting the government may have to do more to halt a protracted slowdown in the economy,” Reuters reports.

The official manufacturing Purchasing Managers’ Index, known as PMI, is forecast to inch up to 50.2 from April’s 50.1 reading. That’s according to the median…

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[etfalpha]

China’s New Silk Road: Implications For The US

China’s response to the so-called US pivot to Asia is to expand influence in Asia. Known as the “One Belt, One Road,” the modern-day Silk Road network “will not only enhance ‘five connections’ – trade, infrastructure, investment, capital and people – it will create a community with ‘shared interests, destiny and responsibilities,’” explains Shuaihua Wallace Cheng, managing director of ICTSD China…

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[welcometokindergarten]

How did the Through-Train Work Out?

Last summer, the biggest catalyst I could see on the horizon for investors was the then-upcoming Shanghai-Shenzhen link to Hong Kong’s stock market. This link, colloquially referred to as the “through-train” was meant to drive liquidity from developed markets around the world into the mainland Chinese shares market, where valuations were substantially discounted owing to the closed-off nature of local stock exchanges.

Here’s what I told Jeff Macke in a Yahoo Finance interview last August…

One massive catalyst that Brown sees boosting Chinese stocks is something called the “through train.” The through train setup would all allow investors on China’s mainland and Hong Kong to trade shares in each other’s markets, which have been limited thus far with trading quotas on both sides. The big factor here is the exposure to China, which would mean “greater access to the mainland’s equities for overseas investors as they could invest much easily in the A-share market through Hong Kong,” reports China Daily.

In Brown’s mind the influx of foreign money into China’s stock market could boost share prices from anywhere from 15 to 30%.

Well, yes – beyond even my wildest imagination. Chinese stocks are up 111% over the last year, with most of that appreciation thanks specifically to the through-train link. Economic in growth in China has actually declined since the link went live so the major catalyst for this doubling in the value of Chinese stocks was undoubtedly a PE expansion cycle driven by the surge in inbound liquidity that was easy to foresee.

The gains, however, were not easy to foresee. Buying into Chinese stocks (or even the Hong Kong-listed stocks like those of the FXI ETF) was far from a no-brainer at the time. Concerns about the banking sector, the shadow-banking complex and the state of the slowing economy offered plenty of reasons to stay away.

In fact, those with the most intimate knowledge of the local stock market – the Chinese equity analysts themselves – barely saw the move coming. According to Bloomberg, Chinese analysts who cover the 50 largest companies in the country had an average target return of just 28% on their market one year ago. So directionally they were right, but estimating the degree to which these stocks would rally was pretty difficult.

Here’s one who spoke candidly about it:

“This market has been driven up by capital that’s flooded in, while you need to touch upon company fundamentals in your research notes,” Li Xiaolu, a Shanghai-based equity analyst at Capital Securities Corp., said by phone on May 13. “We can’t write baseless reports, so the current market makes it more difficult for us, and makes me hesitate. If a stock’s gain is beyond reasonable, it may continue to climb even if I cut its rating.”

“There’s so much money in the market,” Li said. “It’s a bit embarrassing to re-rate companies at this point.”

By maintaining a globally diverse portfolio, investors can avoid the guessing games inherent in trying to tie economic data to the potential returns of the investment markets. This means taking the bad with the good, of course, when things don’t go particularly well. Your other alternative would be to make things up as you go along, and then scramble to find the economic or fundamental data that backs you up, ex post facto.

To each their own, I guess.

Sources:

Big catalyst could send this market up 30% (Yahoo Finance)

When Predicting China Stocks There’s Only Wrong and Very Wrong (Bloomberg)

Image by Marianna

[dragonflycap]

Is Your Portfolio Compatible with the Year of the Goat?

2015 is the year of the Goat in the Chinese calendar.  The luckiest things for goats are the numbers 2 and 7 or any number containing them and the direction North.  Goats are most compatible in love with rabbits, pigs and horses.  this might explain why a combination of a goat and horse, or a llama blew up the internet yesterday.  

In financial circles the year of the Goat has a tough act to follow from the year of the Horse.  The Shanghai Composite rose over 70% in the year of the Horse.  Can it move higher still?  The chart below shows the consolidation around the 3200 level in the Shanghai Composite.

But it also shows the peaks from 2009 and 2010 in this are of current consolidation.  There is not a lot of prior price history above these levels.  The concern a couple of months ago was that it had run up too far too fast.  But the momentum indicators have worked off some of that steam.  The RSI is no longer overbought while the MACD has pulled back.  Incidentally though both are starting to turn back higher.  Is the Goat about to run up the mountain?

A break of the 3400 level would be a first clue.  Followed by a move over the 2009 high at 3478.  If the Composite clears though levels there is nothing but the thin rocky ledges of that steep drop from 2008 for the Goat left to climb.  But Goats are great climbers.  Look for 3750 or 4250 as the next areas of prior activity to be possible resistance and perhaps the round number at 4000 in between.  

If you want to participate in this move up take a look at two ETF's that follow the index closely. The first and most liquid is a DB X-Trackers fund, $ASHR, and the second is the China ETF Market Vectors, $PEK.

More at Dragonfly Capital and get my book, Trading Options: Using Technical Analysis to Design Winning Options Trades

[etfalpha]

Mark Mobius: Will China’s Year Of The Goat Bring Out The Market Bulls?

According to the Chinese calendar, 2015 is the Year of the Goat (or sheep), creatures that are typically peaceful in nature but can also be stubborn, while exhibiting herd-like behavior. I’ve invited my colleague Eddie Chow, senior executive vice president and managing director, Templeton Emerging Markets Group, to share his perspective on some key themes our team is watching in 2015 for China,…

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[dragonflycap]

The Longer Outlook in ..... The Shanghai Composite

  The broad Chinese market took a massive hit with the financial collapse in the US in 2008. But unlike the US and European markets, it did not bounce back to new all-time highs. Instead it only could create a 38.2% retracement of that downward move, before retreating again. It looked like the Shanghai Composite would never turn around until late in 2014. But now that it has, there is a lot of goodness in this chart.

The long term monthly chart below has a lot to say. First notice that the falling channel of price that lasted from late 2009 until late 2014 reversed when it touched the 200 month SMA. Once the price broke the channel to the upside it accelerated until it hit the 38.2% retracement line again, the peak in 2009.

A pause or consolidating pullback at this point would be welcome. Not only has the momentum indicator RSI become overbought, but the price has moved outside of the upper Bollinger Band® for several months in a row. A pullback to reset the RSI and get back within the Bollinger Bands would work off that overbought condition. With the MACD rising and far from the previous high, the Shanghai Composite could then reverse back higher again.

That would fit well with the bearish Bat Harmonic in the chart. This has a Potential Reversal Zone (PRZ) at 5590 to the upside. And don't forget that a Bat can always morph into a Crab. That would shift the PRZ higher to just over 8000.

Finally the Point and Figure chart also broke out to the upside in November 2014. Using the Average True Range (ATR) for the box size it now carries a price objective to at least 6312.

The Shanghai Composite is certainly biased to the upside for the long term investor. In the short run, it would not surprise though to see a pullback to the 2750 area, where the 100 month SMA sits, and where 3 box reversal Point and Figure chart with a 25 point box size looks to right now as a price objective. One thing to consider if you missed the run up so far: if the Shanghai Composite gives you a pullback to 2750 and holds will you miss the next leg higher?

More at Dragonfly Capital and get my book, Trading Options: Using Technical Analysis to Design Winning Options Trades.