China’s Shares May Be the First to Turn Upward

Could China lead the way out of this mundane sideways range that we’re seeing in stocks? So far it has been perking up and showing signs of life far quicker than most other world indices.

The Shanghai composite Index appears to have broken its downtrend and is close to pushing through the upper end of its sideways range.

Morgan Stanley’s China A Shares Fund (NYSE:CAF) seems to track this index fairly closely. See the chart below. The upper chart is the Shanghai Composite Index and the Morgan Stanley ETF is below it. It looks like the Chinese New Year is off to a good start so far.

Chinese shares are holding up better relative to other world indices!

So what could be perking these stocks up? Let’s take a look.

Chinese Government to the Rescue

Chinese stocks ran up to a four month high after the government said that it would aid the equipment manufacturing industry. Also the run up came on expectations that the demand for domestic products will rebound.

This is really helping the sentiment out there right now as investors are turning more optimistic than before. Investors are beginning to see that corporate profits may start to pick up amidst the entire government stimulus that is going on.

The government also said that they will increase the use of domestic made parts in major construction projects.

What’s really important to know, is that their government has pledged 4 trillion yuan (approx. $584 billion) worth of spending to revive economic growth. The central bank has also cut the key lending rate five times since September to support industries and to stem job losses.

The government will also increase their spending on technological upgrades along with boosting support for credit to assist their exporters.

It looks like their government is also going to help their shipbuilders and encourage domestic shipping lines to use “made-in-China” vessels.

The government will also be cutting taxes and offering subsidies for the auto and steel industries.

On top of this, the latest Purchasing Manager’s Index in China rose to 45.3 in January, up from 41.2 the previous month. So some are saying that the worst is behind China with the coupling of the improved PMI numbers and the government spending, tax cuts and subsidies that are happening now.

There also appears to be a bottom put in place in steel prices (showing an increasing demand).

So, all in all, it looks like the story could be changing for China. Formerly, they were getting sucked downward along with the rest of the world.

However, a new day may be dawning for China. Keep an eye on their shares. The strength could lie with them and they may be the first country to turn upward as they come out of the slump the “least beaten up”.

Therefore, if China’s stocks do break higher, the Morgan Stanley China A Shares Fund (CAF) may be the one to watch.

Subscribe by RSS Subscribe by Email