Chinese or US Stocks: Which Are Best for Near-Term Safety?
Most of the news headlines in financial markets have focused on the continued strength in some of the most commonly watch stock benchmarks. For some investors, this presents some difficulties as many have wondered how much actual upside can still be seen in some of the most popular stock benchmarks. For these reasons, many investors are reluctant to start establishing new positions in assets like the SPDR S&P 500 Trust ETF (SPY). But is this really the most prudent stance to take?
Of course, avoiding one assets inevitably means investing in another. Even if you keep your money in the bank, you are essentially betting that the value of the currency will appreciate faster than your other available asset choices. Many investors that are looking to get out of developed market assets at their highs will instead look at China and emerging markets as a viable alternative. But recent data releases out of China suggest that there are major reasons for concern, and that investment choices of this type should not only be avoided — but should actively be sold in short positions.
Reasons to Avoid Chinese Stocks
Over the last few quarters, export data out of China has shown some major declines that surprised large sections of the market. Additionally, these results have led a large number of market analysts to start downwardly revised annual growth projections when looking at the final results in Chinese GDP. There are major discrepancies here and we have seen many examples of market analysts outwardly suggesting that Chinese economic data has been manipulated and that the country is not actually growing at a rate of 7%. If these suggestions are true, investors holding onto Chinese assets are likely to experience some significant losses during the second half of this year and it makes sense to start looking for some relative security in developed market stocks.
Those with active stock trading strategies, the iShares MSCI Emerging Markets Indx ETF (EEM) and the Claymore/AlphaShares China Real Est ETF (TAO) start to look like screaming sells. For the most part, market sentiment has been elevated in recent months, and this is essentially why we have seen sustained rallies in areas like the Dow Jones Industrials and in the S&P 500. But in cases where these trends start to turn, some of the assets that are most quickly sold can be found in emerging markets.
The changing policy stance at the US Federal Reserve (in ending its stimulus programs) is another factor that could place a drag on global stocks and when we take all of these factors in combination, ETFs with significant exposure to China start to look overly risky. A much more stable alternative can be found in choices like the SPDR S&P 500 Trust ETF (SPY), even as it continues to trade at historical highs. The real issue here is broader downside potential and, at the moment, the market environment simply favors developed market stock assets.
