Chinese Stocks Signal Warning Lights
The disappointing manufacturing and non-manufacturing PMIs in April was not what the Chinese stock market was telling us in mid-April!
The Shanghai Composite Index tends to lead the China CFLP Manufacturing PMI by one month. In mid-April the market was actually anticipating stronger PMIs through end May! Sure, a weaker than expected PMI in April and perhaps May and therefore a slowdown of the terrific pace of economic growth is likely to put any further monetary policy tightening by the PBoC on hold and may entice buyers, especially on the outlook of reconstruction in Japan. But what about the impact on Chinese company profits? Over the past week realisation of the possible repercussions of Japan's twin disaster hit the market as it fell by nearly 4% since April's high.
Chinese stocks fell this morning for the fourth consecutive day on worries about the outlook for corporate earnings growth, reported Bloomberg. The Shanghai B Index in US dollar (in which most foreigners invest in China) plunged 5.4% in today's trading session. The Shanghai Composite Index was down 0.7% at the time of writing. The Chinese equity slide could cast a cloud over emerging markets as a whole, at least in the short term. I will not join the bulls like PIMCO and others at this stage and will definitely not add to my Chinese and other equity positions ... yet.
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Author: Prieur du Plessis
Dr Prieur du Plessis
investmentpostcards.com
With 25 years' experience in investment research and portfolio management, Dr Prieur du Plessis is one of the most experienced and well-known investment professionals in South Africa. More than 1 000 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns. He also published a book, Financial Basics: Investment, in 2002.
He holds the following degrees: BSc (Quantity Surveying) (Cape Town), HonsB (B & A) (cum laude) (Stellenbosch), MBA (cum laude) (Stellenbosch); and DBA (Doctor of Financial Management) (Stellenbosch).
Prieur is chairman of the Plexus group of companies, which he founded in 1995. Previously he was general manager: portfolio management at Sanlam, responsible for the management of investment portfolios with total assets in excess of $5 billion.
Plexus is a pioneer in the mutual fund industry and has achieved a number of firsts under Prieur's leadership. These include the authoritative Plexus Survey, a quarterly analysis of the consistency of the performance of unit trust management companies, the Plexus Offshore Survey, the Plexus Unit Trust Indices, and the PlexCrown Fund Ratings.
Plexus is the South African partner of John Mauldin, American author of the most widely distributed investment newsletter in the world, and also has an exclusive licensing agreement with California-based Research Affiliates for managing and distributing its enhanced Fundamental Index™ methodology in the Pan-African area.
In 2001 Prieur received the Santam/AHI Business Leader of the Year award for corporate leadership, business acumen and entrepreneurial flair. He was also profiled in the book South Africa's Leading Managers (2006). Plexus received the AHI/Old Mutual Enterprise of the Year award in 1997 and was also included in the book South Africa's Most Promising Companies (2005).
Prieur is 52 years old and lives with his wife, TV producer and presenter Isabel Verwey, and two children in Welgemoed, Cape Town. His recreational activities include long-distance running, motor cycling and reading. He belongs to the Cape Town Club, Johannesburg Country Club, Gordon's Bay Yacht Club and Swiss Social & Sports Club.
Copyright © 2008-2012 Dr Prieur du Plessis
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