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China Economy Why China Likes Modest Cap Stocks

About: (Buying Manager's Index (PMI), HSBC, China economic climate, China Stock Digest, China small cap stock, Smaller cap, China economic climate, Chinese economic climate, China stock market place) Bookmark and Share

The newswires are buzzing about China's growth curve after once more. This time there is intense debate about the meaning with the most current manufacturing information. Is it up Or is it down

penny stocks Initial the news. A government-backed Buying Manager's Index (PMI) declined to 55. 8 last month from 56. 6 in December, a slight loss indeed. But that figure is at odds with HSBC's China PMI survey, which essentially showed a rise in January, to 57. 4 from 56. 1. What really should we make of this distinction.

Initially of all disregard news outlets that say the government PMI decline signals a drop in China's growth trend. Any reading above 50 on the PMI indicates ongoing growth in the manufacturing sector. Period. The PMI has been signaling growth considering the fact that final year.

The HSBC buying manager's index is slightly different from the Chinese government reading in one critical way. The government PMI looks at huge and state-owned providers, when HSBC's sample of far more than 400 firms is weighted far more toward smaller companies and export-related organizations.

That means the declining government PMI shows that large cap state firms are somewhat weaker than tiny cap corporations. HSBC finds small caps are developing a lot more promptly.

The HSBC rating also indicates strength in export-related industries. The giant Japanese brokerage backs this up in an analysis given to Bloomberg. Nomura forecasts the Chinese economic climate will obtain momentum this quarter as exports surge 30 percent! Nomura predicts that China's economic climate will grow at a blistering 12 percent this year. Pessimists see this as negative news.

Some news reports argue that sturdy growth will force the Chinese government to clamp down on lending to prevent asset bubbles from developing. That, they claim, would be undesirable for business enterprise and negative for the markets.

But we and numerous other China watchers see rate of interest hikes as an inevitable trend in the coming year. The effects of this and other clampdowns on industrial growth are already assumed, and "baked-in" to stock prices.

What counts will be the growth. Smaller cap corporations and exporters are on a trajectory for double-digit growth in 2010. There will always be pessimists and critics from the China growth story. But what counts is just not temporary lending halts or fractional increases in interest rates. It is actually the huge image.

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