Is China’s Resilience Enough to Attract New Investors?

 

“An idea is a point of departure and no more. As soon as you elaborate, it becomes transformed by thought.” — Pablo Picasso

 

Last week saw investors exposed to a broad swath of noise from a number of diverse sources, and the bottom line was that Wall Street pretty much ended the week close to where it had begun.

With a mixed bag of Q3 earnings announcements, a positive U.S. manufacturing report, and continued ambiguity by the Fed in terms of announcing any definitive date for the start of tapering its $85 billion-per-month bond purchase program, Wall Street seemed to offer a little something for Bulls and Bears alike.

And, with no clear direction or strong impetus either way, the year’s primary uptrend remained mostly intact, if due to nothing more than inertia.

The Dow Jones Industrial Average (DJIA) ended in the black by the thinnest of margins as it ended the week up a mere 0.3%. The S&P 500 Index (SPX) made it into the plus column as well, but just barely, as the benchmark index gained 0.1%.

Meanwhile the Nasdaq Composite (COMP) landed in the red zone, shedding 0.5% for the week.

What is more worthy of note, however, would be the bottom line for the equity market in October.

The Dow climbed 2.8% for the month, while the Nasdaq ended up adding 3.9%. The best performer of the lot was the SPX, which ended up 4.5% for the month. And, as of week’s end, SPX was up 23% year-to-date.

While Wall Street has performed exceptionally well for the bulk of 2013, a number of other global markets have had difficulty keeping up with Uncle Sam.

China for example has seen its economy struggle for the first half of the year, though it seems to have rebounded nicely over the last few months.

FXI (iShares China Large-Cap ETF), which tracks the FTSE China 25 Index and is composed of the largest companies in China, can be regarded as something of a proxy for that country’s equity market. It has gained over 20% since mid-June, when fears of a banking liquidity crisis swept over investor sentiment.

However, that situation seems to have been adequately diffused by the powers that reside in Beijing, and, aside from a mid-October blip of renewed concern focused on credit issues, China’s equity market continues to reflect a renewed sense by investors that the government is doing most of the right things to keep the world’s second largest economy on a reasonable path of growth.

While China’s leaders readily acknowledge that the days of double-digit growth are no longer on the immediate horizon, the consensus estimate is that China’s GDP will increase by a reasonable 7.6% in the coming quarter.

And, of some significance, with both the manufacturing and non-manufacturing sectors showing improvements in a pair of reports last week, China’s leaders may be able to recommend implementation of bolder economic reforms at next week’s internal summit.

And in terms of retaining market momentum, its leaders may feel they can keep a fairly loose hand on the economic reigns, at least in terms of retaining some of the small stimulus measures currently in place.

For investors, opportunity remains, as long as China’s government doesn’t allow its fear of increased unemployment numbers to overshadow the need for an increase in growth-stifling regulation.

What The Periscope Sees

The Sabrient SectorCast ETF Rankings rate each of the ten U.S. industrial sector iShares (ETFs) by Sabrient’s proprietary Outlook Score and revised on a weekly basis.

This week, the Financial Sector takes the top spot, breaking a multi-week streak held by the Technology Sector, which fell in the rankings due to a souring of investor sentiment towards the sector.

Presented here is the current list of some of the top performing Financial Sector ETFs year-to-date, as of the last week of October:

KIE — SPDR KBW Insurance ETF, +35.52

FXO — First Trust Financial AlphaDEX Fund, +31.65%

IYF — iShares Dow Jones US Financial Sector Index Fund, +25.39%

XLF — SPDR Financial Select Sector Fund, +25.81%

VFH — Vanguard Financials Index Fund, +24.34%

ETF Periscope

Full disclosure: The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

Disclaimer: This newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by either Daniel Sckolnik or Sabrient. Neither Daniel Sckolnik nor Sabrient makes any representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.