How Confusion About the Chinese Economy Is Hurting Your Stocks by gloriasimmon

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How Confusion About the Chinese Economy Is
Hurting Your Stocks
By Sasha Cekerevac for Investment Contrarians | Nov 14, 2012




With investor confidence still relatively weak, many are looking for any signs of a
rebound in the global economy. One area many are looking to is the Chinese economy.
Not only has the Chinese economy become a greater force within the world
economically, but many U.S.-based companies are generating a significant amount of
earnings from that nation. Investor confidence is partially being predicated on the hope
that the Chinese economy can offer some glimmer of optimism, as opposed to the still
anemic gross domestic product (GDP) growth levels in America.

Recent data from China offers a bit of a mixed picture. Exports in October rose at the
fastest pace in five months, coming in 11.6% higher than the previous year. This
compares to 9.9% year-over-year growth for September. That is certainly a good sign for
the Chinese economy, and some investor confidence might be rallied off such figures.
(Source: “China Exports Exceed Estimates in Sign of Global Pickup,” Bloomberg,
November 10, 2012.) However, the sky is not all clear yet.

The head of the National Development and Reform Commission, Zhang Ping, stated that
he believes the Chinese economy must be prepared for increased turmoil from various
nations around the world. In addition, domestic issues still are quite serious. (Source:
“China Exports Exceed Estimates in Sign of Global Pickup,” Bloomberg, November 10,
2012.)

This is a difficult way to build up investor confidence. On the one hand, there are some
signs the Chinese economy and the global economy might be moving upward off the
floor. However, there are still numerous indicators pointing to the fact that things could
quickly unravel and become far worse. Neither the Chinese economy nor the U.S.
economy can take a massive hit at this time; they’re still too fragile.

While I’m sure no one wants to keep hearing about Europe, the truth is that the problems
there are far from resolved. With Europe being a huge consumer for exports from the
Chinese economy, investor confidence must be tempered with the reality that if Europe
crumbles, the ramifications would be quite severe for many firms and nations around the
world.

It certainly is good that we’re seeing some positive news in the data regarding the
Chinese economy. However, I would certainly caution that optimism be topped with a
healthy dose of skepticism. Investor confidence needs more than a month or two of data
from the Chinese economy to have a long-lasting impact on stocks in America.

If Europe were to implode, and if this further hurts the Chinese economy, you can be sure
that many U.S. corporations, as well as America itself, will feel the pain. This is why
investor confidence is so fragile; because the global economy is so intertwined that
situations that occur thousands of miles away will hit our shores eventually.

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