Tuesday, October 18, 2011

China Growth Remains Strong Over 9%

As every pundit in the media wants to fret over 'slowing' growth at China, it makes us ponder why investors aren't happy getting the medicine that the doctor orders. Just earlier this year everybody though China was growing too fast and inflation was becoming a problem. What gives now that the government has engineered a soft landing?

The latest report shows that China GDP grew by 9.1% in Q3 after 9.5% in Q2 and 9.7% in Q4. This after inflation reported last week dropped to 6.1% for September down from the summer peak of 6.5%. Inflation is expected to drop further as commodity prices drop comparisons peak. China as inflation dropping faster than GDP providing for an ideal investing scenario.

Other encouraging news, September retail sales rose by 17.7% and industrial output rose by 13.8% both above estimates and suggesting that Q3 ended on a high note.

From the data, it's difficult to understand the hard landing fears. For a country full of savers, rising interest rates have actually increased incomes. Just the opposite of how lower interest rates tend to spur investment in the US as we are a country of spenders.

The US markets have rebounded strongly this afternoon. Whether it's from a technical bounce off the 50ema or realization that China growing at 9.1% after a induced slowdown is actually bullish. Investors seem to forget that China has the firepower to speed up growth if warranted.

Material and industrial stocks are the most appealing after being crushed this summer. Some of the China internet plays are very attractive though accounting fears continue to linger so investors have to be careful. Even Brazilian stocks are attractive as investors fret a slowdown in China will hurt the mining economy.

Per CNBC article:
  • GDP grew 9.1 percent from a year earlier, the third consecutive quarterly slowdown in growth after 9.5 percent in the second quarter and 9.7 percent in the first.

  • But other figures on Tuesday suggested the domestic economy was growing healthily. Fixed-asset investment, the main driver of growth in world's second-biggest economy, and retail sales were stronger than expected.
  • Countering the impact of the global slowdown, fixed-asset investment in the first three quarters of the year chalked up annual growth of 24.9 percent, slightly ahead of forecasts of 24.8 percent.
  • Retail sales rose 17.7 percent in September from a year earlier, topping forecasts for a rise of 17.0 percent.
  • Indeed, industrial output in September rose 13.8 percent, above forecasts for an increase of 13.3 percent, suggesting the third quarter ended on a slightly upbeat note.
  • "Although economic growth has moderated slightly, it's still stable," Sheng Laiyun, spokesman at the National Bureau of Statistics, told reporters after the data release, dismissing the risk of a sharp deterioration in the economy.

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