Since last summer, global economies and financial markets have been embroiled in a continuous series of turmoil. The key element has been attributed to uncertainties about the Chinese economy and the subsequent collapse of the Chinese stock markets initially back in July and the second wave literally at the beginning of this year.
Being the second largest global economy and by definition a major procurer of most commodities and other resources on a global basis, it was almost a knee jerk reaction that the economies of almost all commodity producers have been negatively impacted by the slowdown of the Chinese economy.
Forecasts of doomsday scenarios, especially about China, quickly followed. Nevertheless, the Chinese continued to play hardball. They have repeatedly injected stimuli into their economic system. As much as the positive results so far have been anemic, they have strongly indicated their determination to stabilize and grow the Chinese economy going forward.
In addition, the much feared Chinese devaluation of the yuan has not materialized. In part, Chairperson Yellen’s recent announcement about the scaling back of the four Fed rate hikes in 2016 has not only contained the fears about Chinese intentions and the outlook on their currency, but also calmed stormy waters, especially in emerging economies.
As for China, there are some early signs of green shoots sprouting. However, on a seasonal basis, post lunar New Year, comparisons are always very tricky. Nevertheless, comparisons do get easier with the base effect coming into play since China’s economic activities were particularly weak in the 2nd half of last year.
Furthermore, good or bad, the Chinese authorities have made a sustained effort to also stabilize financial markets. In this instance, we believe that it is very hard for market participants to bet against the central bank. In addition, it is important to remember that as a class, Chinese securities are very much under-owned by global investors.
So we are therefore quite constructive about China/Hong Kong shares. We believe that there is a great likelihood that the balance of 2016 may very likely turn out to be a mirror image of the first quarter and end the year resoundingly higher.
For a global overview please see A Singular Viewpoint at John Hsu Capital Group