China is Rising

Written by Nathan White, chief investment officer

    photo by Luo Shaoyang 

New for this year, I thought it would be insightful to discuss the rationale for some of our holdings in order to give our clients a better view of where we stand. Our trend model has recently turned bullish on China and since its bottom on October 27, 2008. The MSCI China Index has shown good relative strength versus most markets.

The markets could be signaling an economic recovery in China and so we took a position in anticipation of this scenario. China has not been as damaged from the direct effects of the credit crisis and stands to benefit from fiscal and monetary stimulus. The Chinese central bank has been lowering rate and allowing the yuan to weaken.

China's $586 billion stimulus package includes infrastructure projects, which could have a more beneficial effect in China due to its relatively under developed status than the effect comparative projects would have in developed countries such as the U.S. term, China's foreign currency reserves and net creditor status give it an advantage over net debtor nations such as the U.S. Debtor nations are being forced into saving while creditor nations have the ability to increase consumption. If the markets enter a recovery phase, we look to China to be one of the leaders to the upside.