Saturday, November 23, 2013

A trade in CHINA: An update from my perspective

China has remained a central focus in any discussion that talks of global health and wellness.  Either the challenges with it's population or the continued growth model that spawns stories of empty cities, and skyrocketing property values, purely on speculation.  The average Chinese savings rate is claimed to be 50%, considerably more than the global average of 20%.  Significant policy changes are underway.  There is a strong expression by the leadership to better control corruption.  Some rather historic examples are making their way through the system.  There is a strong drive to boost domestic consumption.  One of their most significant challenges is environmental degradation, and particularly clean fresh water and air quality.  With expectations to continue forward at 6-7% growth, these challenges will only become more severe and more difficult to manage for China.  And there is a contingent of global financiers  that have continued to call for the fall of China's economic prowess.  Jim Chanos remains steadfast in his view.

And yet amongst that continuing storyline, there are stories running in parallel that are focused on the likelihood that changes within China will lead to the continuation of this past pattern of growth - current forecasts remain in the range 6-8%.  And the weekly charts below for FXI and SSEC support that notion - there is the potential for both of these instruments to break out above their descending trendline originating in October '08.  Price has been respectful of that line on both charts with many touches and resistance.  Price can certainly continue within the compressed channel, so there are many other potential outcomes.  Which outcome has the highest probability? and aligned by high reward with the least risk?  Watching and learning.