Has China lost its mojo?
During the late ‘90s and early ‘00s the country became a manufacturing powerhouse, using inexpensive labor and managerial skill to surpass Japan, Germany, and the US in global exports. The value of its stock market soared, growing 5-fold between 1999 and 2007. China’s economy, and especially its coastal areas, have become boom-towns.
But since the Financial Crisis that market has been in decline. Stocks have fallen 60%, led by Chinese oil companies and banks. While other indices have gone on to reach new highs, The best the Chinese composite did was come to regain about a third of what it lost—back in 2009. Since then, the market has been in a steady down-trend.
Has China caught a Japanese flu? Back in the ‘80s Japan’s market was soaring, only to collapse under its own financial bubble. All their borrowing and spending couldn’t jump-start that economy, and their market has been on a 20-year slide.
But China is not Japan. Their economy is still expanding at a dramatic rate because they are a developing economy still building tangible and intangible infrastructure. There’s no evidence that their share of global trade is falling, and their entrepreneurial culture is intact.
China’s economy is still highly competitive. It’s market pullback will reverse, once they deal with some of the problems their growth has created.
Douglas R. Tengdin, CFA
Chief Investment Officer