No. of Recommendations: 14
Those of you who followed this board know me and that I am working in Hong Kong and China. Unfortunately I have been very busy lately travelling for my company in Asia and Europe, thus I could not post a lot.
Currently I am back in HK and due to a public holiday yesterday (7 years of HK independence accompanied with a huge demonstration for more democracy!) I have the chance to take another day off and enjoy a long weekend before I fly out to Europe next week to visit some of my customers.
With so much free time ;-) I want to share some of my thoughts about the Chinese economy and the possible outlook for this year.
Hopefully it will help to revive this board as it has become really quite lately.
I know a lot of you have followed Larry to the Fab 15 board which is a great concept too but for the ones who believe in the Asian and especially the Chinese future and who want to diversify away from pure US plays, it's important to have a board like this one.

So how does it look like for China after the attempts of premier Wen Jiabao to cool off the economy?
With the approach 3rd quarter more and more economists (from world bank to international currency funds) foresee a soft landing, which is great news for our China connection stocks!
Even though that we could see negative headlines like the possible bankruptcy of the huge conglomerate D'long, it seems to be only a necessary step in a cleaning of the market rather than a trend that is being started.
Actually the cutback in building activities has started to take the price pressure of aluminium, steel and cement! Investments in this area including the construction sector now are only allowed to be financed with a max of 60% credit compared to 75% before. This has resulted in a M2 money increase last seen 1.5 years ago. A sign, the policies are working according to Robert Subbarnaman (Lehman Brothers).

Construction investment has gone down to 34% in April from 43% in March!

For the moment is seems like China could come out of overheating fight even stronger than before! The Asia crises, the world recession at the turn of the millennium and the SARS crisis last year have been used by Beijing to introduce unpopular structural changes with general acceptance as it was for the good of the whole nation. During those times Beijing was able to push the changes through even against local resistance, as everybody had to agree that it was for the benefit of the nation.
The only problem for Wen will be to keep the balance between the booming coastal areas and the western and central regions! As long as he can manage to keep the population calm by making sure they can keep up with price hikes he will be on the safe side. It remains to be seen if he can manage to do so without a lot of government regulation. Otherwise it would be a great step back from a market-regulated economy.

But to the outside he looks already like the winner. This should help lifting the confidence in Chinese stocks again. Maybe it will take some more time but soon the big money starts flowing back as they are waiting for the results and than we will see confidence return into this sector.

Personally I believe our CC stock picks have a great future ahead and the current phase is just a breath taking pause before the next sprint.

Feel free to comment…

with best regards Ganni
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