China's Economy Still Surging, According to Latest Issue of Money and Markets

Jupiter, FL (PRWEB) December 20, 2007 -- Tony Sagami takes a closer look at China's economy and the reasons it's surging. Mr. Sagami examines the slumping U.S. economy and the rising Chinese markets.

U.S. stocks have been struggling ever since the Federal Reserve Bank disappointed investors with a measly 25-basis-point interest rate cut starting December 11. After nose-diving by almost 300 points Tuesday, and posting further losses for the rest of the week, the Dow Jones Industrial Average fell another 172 points on December 17.

Falling real estate prices and retail sales, rising inflation and energy prices, and the continued saga of billions in subprime write-downs have investors feeling the pain. And some of that pain has washed across the Pacific Ocean and infected Asian markets. The Shanghai Composite Index surged from 2,695 at the beginning of the year to a record high of 6,124 on October 16. Then over the next 30 days, it lost more than 1,000 points.

The Chinese market could get a whole lot better.

China's surging economy is proof that the partial adoption of a market economy has been a booming success. The rising Chinese economic tide has lifted millions of Chinese out of poverty and is the greatest economic success story of our times. But a bear market in the country's stocks would wipe out years of savings, scare small investors away and derail China's economic juggernaut.

This point is not lost on the leaders of the Communist Party. They want to avoid any event that would jeopardize their agenda to boost China's standard of living, economic growth, and inflows into the country's capital markets.

This is why the 17th Party Congress in October pledged to let people accumulate their "asset wealth." In other words, keep their stock portfolios rising in value. And remember, China is a communist country. Don't think for a second that the Chinese leaders can't do whatever they want. The Communist Party has absolute control of everything from prices of food and oil to the content of newspapers and television shows.

For starters: Chinese officials are publicly stating that stocks have more upside. On November 30, a commentary in Securities Times, a major securities daily that is used to voice the wishes of Chinese market regulators, clearly stated that the Chinese stock market is not overvalued or developing a bubble.

Li Yang, the director of the Institute of Finance and Banking under the Chinese Academy of Social Sciences (CASS), said that applying western P/E ratios to Chinese stocks is a mistake. He argued that China is an emerging economy, which makes it an entirely different animal. Yang said that by leveraging the rapid growth of China's economy and continued appreciation of the yuan, most listed companies are expected to report handsome profit growth, which will bring down their P/E ratios.

Li Yang publicly stated that Chinese stocks are nowhere near being overvalued. His conclusion:

"China's stock market in 2007 is one of a fast-running bull. The running speed of the bull is slowing down but it is still a bullish market. The market will remain bullish ahead of the Olympic Games."

But don't make the mistake of assuming that 'jawboning' from Chinese government officials is as powerless as it is in the U.S. The difference is that in China, the Communist politicians can back up their jawboning with timely policy action.

For example, on December 9, the State Administration of Foreign Exchange (SAFE) announced that it was going to triple the quota for qualified foreign institutional investors (QFII) putting money into Chinese stocks listed on the Shanghai and Shenzhen stock exchanges.

And the IPO market is hot in China:

?    China Shipping Container Lines, the second-largest shipping company in Asia, raced ahead by 75% on its first day on the Shanghai stock exchange.

?    China Railway, Asia's biggest construction company, rose 69% on its Shanghai debut.

?    Petro China, the company that Warren Buffet recently sold, skyrocketed 163% on its first Shanghai trading day.

"The U.S. stock market is ugly and about to get uglier, but do not make the deer-in-the-headlights mistake of inaction. Instead, consider reducing exposure to domestic weakness and put money to work in places that are still expanding," states Tony Sagami.

To read this issue online, please visit:

http://www.moneyandmarkets.com/Issues.aspx?NewsletterEntryId=1279

About TONY SAGAMI & MONEY AND MARKETS     

Tony Sagami, a veteran investment advisor and a leading expert on Asian markets, is the owner and founder of Harvest Advisors, an investment research and money management company. Mr. Sagami has been managing money for more than 20 years and is one of the early pioneers in the application of technical and quantitative analysis to mutual funds and stocks. He is a featured contributor to Weiss Research's daily e-letter, Money and Markets and monthly Safe Money Report as well as the editor of Asia Stock Alert.

Prior to establishing his own firm, Mr. Sagami was managing director at W.E. Donoghue & Co, serving additionally as the director of investment. During his successful career, he also held the position of account executive at Merrill Lynch.

Mr. Sagami's views on Asian markets, specifically Chinese investments, have been featured in publications such as The Wall Street Journal, Barron's, Kiplinger's, Smart Money, Business Week, New York Times, Washington Post, Investors Business Daily, Bloomberg, Financial Planning Times, Mutual FundsMagazine, Chicago Tribune, and the LA Times, as well as on CNBC and CNBC Asia.

Mr. Sagami holds a degree in economics from the University of Washington.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.

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