Invest in China, definitely, but with caution. Just like the Hang Seng Index (HSI) on Wednesday, I'm beginning to feel some sort of a reversal. Apparently it seems like the market is more eager to cash out for profits after the August slump rather than go long on the Chinese economy. So much for faith.
It's now Thursday morning in Hong Kong, and from what I see, seems like (HSI) is going to trade lower for awhile. Was I wrong in saying that everything is alright when it isn't? Let's analyze what's going on.
So on Wednesday, the HSI posted it's largest intraday reversal in 9 years, going from +2% to -2.55% at closing. Why is that? As I see it, the results were mainly to do with:
1. Weak earnings reported by financials.
2. Uneasy sentiment on manufacturing/services economic data.
3. Volatile oil prices.
Note that 2 out of the 3 reasons (that is, apart from oil) has no direct impact on the fundamental valuations of Chinese companies, unless one consider's the decline of long term trade with the US. However, that thought is far from reasonable, for more reasons than one. Just in case you missed my last post on the subprime crisis, the US economy shows significant signs of recovery.
All that discussion leads to one conclusion: one we going to get a deal out of lower Chinese equity prices now, before they get traded up again? That's for you to decide.
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