Why Chinese Stocks Are the Way to Go

The only things to be excited about in capital markets right now are commodities and Chinese equities. The time horizon for expected returns in U.S. equities has lengthened considerably. The outlook for bonds (both corporate and government) is terrible. And cash, while it's always useful to have lots of it around, won't earn you much of anything given inflation.

The commodity price cycle isn't over and, with China's looming economic stimulus spending, my best guess is that a handful of raw materials will once again resume their bull market.

I think it's very important for investors to keep a sharp eye on what's happening in China. With the Western world in a deep recession, China is the only economic engine that can help mitigate our circumstances. India is a force as well, but China is the one with the money. The country can afford what it plans to spend on economic stimulus and it owns our debt.

The Chinese stock market has already corrected. That stock market was in a bubble in 2007, which burst before the subprime mortgage collapse and the credit crisis. I think we're going to see a big recovery in Chinese stocks in the not-too-distant future and we'll see that their government stimulus package will increase the demand for the world's commodities once again. Oil is going to go back up and so is the price of grain and other agricultural commodities.

Things in Asia have tended to move in opposite ways to things on our side of the world, and the economy is no different. As a country, China is used to the strong role that government plays in its economic development and this is why the world is so hopeful for its economic recovery. I say hopeful, because there isn't anything left that domestic policymakers can do. Interest rates can't go lower. There isn't more money to spend on infrastructure. Government doesn't have many tools left to help mitigate this recession. So, all that's left is China. The stock market being forward looking, the current environment seems like an opportune time to be considering Chinese equities -- those equities that trade in the Chinese marketplace.

Profit Confidential

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