CHINA - a new 5-Year-Plan => a new 5-year bull market?
"Conquering" the rewards offered by Chinese stocks, we are diverted mainly to those available in Hong Kong (Hang Seng), or our STI. The few stocks that are listed on major indices, or the so called Greater China regional benchmark are greatly diluted by currency fluctuations and foreign investor activity.
Indeed, we need to look toward August 2009, when the stocks in Mainland China recorded a yearly peak, in line with global equities but then started a highly significant correction, following government intervention to an overheating economy and house prices in particular. The correction lasted almost a year with a final bottom in early July this year, - just as I had indicated in our China Seminar in July.
The sole reason why this is so important is that the entire correction came against the backdrop of rallying global markets till January 2010. This then was the longest non-correlated period between Chinese stock markets and the rest of the world, - a landmark in the "Asian decoupling theory". Decoupling is no longer just a fiction of some Asia enthusiasts' imagination.
Just when the Fibonacci time line touched the SSE chart in early October, a new 5-Year-Plan was sanctioned by the Chinese leadership, which not only talks about economic progress but hints at political and social changes. It also seems that a collective decision was made to start supporting the local exchanges and enhance the access for foreign direct investment, and so - stocks rose promptly and exuberantly the moment the national holidays were over. Rising from 2580 to almost 3000, 15.5% gains were recorded in just 10 days. Volumes were huge, too.
That is a signal we should not ignore. Clearly, the advance will need to moderate in the short term, but the direction and resolve displayed by market participants affirms the long term bullish outlook.
Did this quantum leap rub off on the Hang Seng, - so that we foreigners can make some money, too?
Actually, the rally in the Hang Seng started early in the second week of September, close to an important Fibonacci time line. There clearly was anticipation of goods-a-plenty in the new 5-year plan. But you can see the sharp increase in volumes, the day the SSE started to rally. The long held "alternative peak" target (red arrow/Fibonacci level)was promptly pierced, quite a common occurrence during a highly momentous move. A new yearly high was recorded a few days ago.
As I said, both the advances in the SSE and the Hang Seng are simply parabolic and we must expect a moderation very soon. In the very short term, however, there is also a potential of a substantial collapse, before a more moderate (?) move will recapture current highs and exceed them by - December. We can safely say that the more moderate advances and expectations I outlined with the orange arrows are no longer of relevance.
Medium Term Forecast
Here is a repeat from a forecast I made in July, outlining the potential advance in the two diverse Chinese funds, using the intricate forecasting methods of the cosmotrend methodology. Both funds seem to suggest a pull back from current highs in the very short term. A 'V'-shaped recovery rally from this low point seems to last well into the first quarter 2011. I said in July, "buy the market a bit at the time, using the monthly pull backs." We did not see any pull back for September, - and October, yet.
In a nutshell
The new five-year plan now coming into force will create huge opportunities - and probably a fair share of challenges too. I am pretty confident that this portends strong gains in its stock markets, and as an added bonus, an appreciating currency, too.
I would not want to limit the same to China, but the world at large.
An Old StoryI have been highlighting in every seminar in January trough to September that it is the emergence of China's own stock market trend, which would change investment parameters around the world in a big way. It is happening!
The sole reason why this is so important is that the entire correction came against the backdrop of rallying global markets till January 2010. This then was the longest non-correlated period between Chinese stock markets and the rest of the world, - a landmark in the "Asian decoupling theory". Decoupling is no longer just a fiction of some Asia enthusiasts' imagination.
Here is an outrageous statement: I consider July 2010 a turning point in the longer term big picture for the momentum of global stock markets. It means to say that the leadership of the S&P 500 is not just at risk of declining, it will accelerate from here on in, while Chinese bourses are in line to become the markets dictating pace and direction.Current outlook
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| 3-month view SSE 180 |
That is a signal we should not ignore. Clearly, the advance will need to moderate in the short term, but the direction and resolve displayed by market participants affirms the long term bullish outlook.
Did this quantum leap rub off on the Hang Seng, - so that we foreigners can make some money, too?
Actually, the rally in the Hang Seng started early in the second week of September, close to an important Fibonacci time line. There clearly was anticipation of goods-a-plenty in the new 5-year plan. But you can see the sharp increase in volumes, the day the SSE started to rally. The long held "alternative peak" target (red arrow/Fibonacci level)was promptly pierced, quite a common occurrence during a highly momentous move. A new yearly high was recorded a few days ago.
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| HANG SENG 4-month view |
As I said, both the advances in the SSE and the Hang Seng are simply parabolic and we must expect a moderation very soon. In the very short term, however, there is also a potential of a substantial collapse, before a more moderate (?) move will recapture current highs and exceed them by - December. We can safely say that the more moderate advances and expectations I outlined with the orange arrows are no longer of relevance.
Medium Term Forecast
In a nutshell
The new five-year plan now coming into force will create huge opportunities - and probably a fair share of challenges too. I am pretty confident that this portends strong gains in its stock markets, and as an added bonus, an appreciating currency, too.
I would not want to limit the same to China, but the world at large.
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