I agree Mr B, I was just reading up on china and from what I am seeing the small caps in china will make the turn to recovery first
Ned Davis Research, Inc. NDR MarketDigest, January 2009
Bullish On China -- Commodity Theme
Comeback in 2009?
China Leading the Way? It’s still too
soon to say that the global market trend
is turning upward. What we can say, however,
is that the Chinese market has established
an uptrend. As shown below,
our 10-indicator Trend Model for the MSCI
China Index has now reached its bullish
mode in which the index has risen at
a 36% per annum rate. Since its bottom
on October 27, the index has gained 49%.
And it has outperformed impressively,
with the relative strength line up by 40%
since then.
Implications and observations:
„„ The market is expecting an economic
recovery in China. The global
economic contraction has depressed
both imports and exports, industrial
production has declined to single digits,
and retail sales have rolled over.
But the market’s performance is suggesting
that the economy is experiencing
a soft landing, not the hard
landing experienced by leveraged
economies such as the U.S. and U.K.
Relatively unscathed by the direct effects
of the credit crisis, China stands
to benefit from fiscal and monetary
stimulus. The central bank has been
participating in the global rate cutting
trend and allowing the yuan to
weaken. And China’s $586 billion stimulus
package includes infrastructure
projects and incentives to move the
economy toward increased consumption
and reduced dependence on the
U.S. and other developed economies.
Cheaper oil and commodities should
help China establish this initiative.
„„ China’s recovery will lead a global
recovery. In anticipating a recovery
in the Chinese economy, the relatively
strong stock market is anticipating a
subsequent economic recovery globally.
We are expecting the U.S. market
to enter a cyclical bull market in the first
half of 2009, anticipating an economic
comeback in the second half. As major
market and economic trends tend to
be global in scope, we would expect
to see similar trends around the world,
with the Chinese market continuing to
outperform on the widening expectations
of economic improvement.
Global Focus Daily Data 4/16/1996 - 12/26/2008 (Log Scale)
(I 18055)
MSCI China Index (U.S. Dollars) 12/26/2008 = 39.6
MSCI China Gain/Annum When:
China Gain/ %
Trend Model: Annum of Time
* Above 80 34.6 28.3
Between 30 and 80 18.4 43.0
30 and Below -48.1 28.6
14
16
18
20
22
25
28
32
36
41
46
51
58
65
73
82
93
105
14
16
18
20
22
25
28
32
36
41
46
51
58
65
73
82
93
105
12/26/2008 = 92.0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
MSCI China Index
MSCI China Index 10-Indicator Trend Model
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M J S D
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M J S D
2003
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2005
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2006
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M J S D
„„ China-driven commodity demand
to come back. The government has
said that it plans to build up state reserves
of base metals. And there’s evidence
that shipping activity is picking
up, with an increase reported in the
shipments of iron ore from Brazil and
Australia to China. The Baltic Exchange
Dry Index and components have started
to show signs of stability, with the
Capesize index already up 75% from
its early-December low. In the country’s
steel center of Tanghsan, 60% to
70% of the steel mills have reopened
after being closed in September and
October.
„„ Latin American markets to stay relatively
strong. While China has been
the top performer among 58 MSCI indices
since October 27, Latin America
has been right behind it, a sign that
the China-driven commodity demand
theme is returning. Five of the six other
best performing indices have been
Latin American markets, and the sixth
has been resource-based South Africa.
In our Global Market Ranking, Latin
American markets account for the top
four while South Africa ranks fifth.
„„ Commodities also likely to recover.
For volatility, China has been in the
top third among the 58 MSCI indices
(based on the mean absolute change
over the past 100 days). And among
the 13 other most volatile markets,
nine have been emerging and seven
have been resource-based. Volatility
omens are bullish not only for the
most volatile markets, but also for the
most volatile commodities and currencies.
Those include metals (lead, nickel,
and zinc), energy (blendstock futures,
crude oil, and coal) and the currencies
of Brazil, Australia, and South Africa.
„„ Secular uptrends remain intact. If
the U.S. market enters a cyclical bull
market, it will do so within an ongoing
secular bear market. If the Chinese
and Latin American markets enter
cyclical bulls, their uptrends would
take place within longer-term secular
bull markets. Valuations are generally
more compelling for China and
other emerging markets than they are
for the U.S. And those markets have
higher trailing earnings growth and
expected earnings growth.
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