Trading The Globe: Is China Finally Ready To Ease? (JJC, DBC, FXI, HAO, EEM, TCK, SCCO, FCX)
Tim Seymour: Tonight’s inflation numbers out of Beijing could confirm that China is finally ready to loosen its monetary policy. We talk about it today on Trading the Globe.
We are looking for a level of maybe 5.3% in tonight’s CPI, but the consensus estimate is 5.5% and there are whispers as low as 4%.
Anything under the 5.7% we saw last month should reassure the China bulls that the government’s long campaign to bring consumer prices under control has succeeded.
This view is largely missing from the broader market, but while subtle, it is crucial to understanding the way monetary policy is evolving in countries like China.
And after a year of inflation anxieties and rate fears, Chinese stocks are now trading at 1.5 times book value — cheaper than at any other time since July 2003.
Premier Wen Jiabao surprised and delighted traders around the globe last week by conceding that it is time to “fine tune” monetary policy to nurture small businesses.
We have been all over this here at emergingmoney.com.
Now that Wen is behind “reasonable” growth in money supply, we might see Chinese businesses of all sizes get access to more funding — and since the amount of capital available to lend has been the bottleneck, this may mean they can invest more heavily in new equipment and supplies.
This has major implications for commodity prices (NYSEARCA: DBC) and the companies that mine everything from copper (NYSEARCA: JJC) to iron ore.
On the copper side, remember that China consumes 40% of the world’s copper supply.
The Freeport McMoRan (NYSE:FCX) strike has been a major drag on production, so buy those who are still pumping out plenty of copper but also benefit from rising prices: Teck (NYSE:TCK), Southern Copper (NYSE:SCCO), Antofagasta (PINK:ANFGY).
Ultimately, stronger and bigger Chinese companies spells upside for Shanghai.
Large-cap funds like iShares FTSE China 25 Index Fund (NYSEARCA: FXI) are already surging on the news, but small-cap shares represented in Guggenheim China Small Cap (NYSEARCA: HAO) are doing a little better on the prospect of a new expansion phase ahead.
And since China accounts for 16% of global emerging markets funds like iShares MSCI Emerging Markets Index (NYSEARCA: EEM), the news is a positive for the entire asset class we cover here.
Written By Tim Seymour From Emerging Money
Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.
About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.