For all its spectacular growth in the last decade, China has
an economy in rapid transition from an export-driven
economy to one driven by internal needs and demand. Investors
who can recognize the change and act on it now may benefit even
more than China investors in 2009, when the countrys
economy grew by 8.7 percent and its gross domestic product
total was $4.9 trillion.
Our analysis suggests that Chinas outperformance
is poised to continue and we remain overweight China,
says Richard Ross, global technical strategist with Auerbach
& Grayson, a New York brokerage firm that specializes in
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China is the worlds most populous nation and the
largest player in the BRIC (Brazil, Russia, India and China)
universe. Its GDP growth is among the fastest of the
worlds major economies. Its a nation that has built
its growth without the kinds of leverage that has been so
characteristic of growth of western economies. And its trade
surplus of $3 trillion is causing many to see it as the next
global superpower, eclipsing even the US.
The global economy now is bifurcated between the emerging
markets and the developed markets, with more and more assets
equities and fixed income being allocated to the
emerging markets. Morgan Stanley, for example, expects the
inflows into the emerging markets to exceed $1 trillion
annually. Given the extent to which this is likely to
lead to foreign exchange reserve accumulation, this trend to a
strong pull upwards for emerging market assets, writes
Morgan Stanleys Rogerio Oliveira. What country is the
greatest beneficiary of this asset allocation? China.
Still, there is also a lot of bearish sentiment that has
suddenly overtaken the optimism surrounding China. Inflation in
China could undo many of the strides that the economy has made,
the bears say. They point to the slowing down of the economy
and to the housing bubbles that are about to burst.
The recent purchasing managers index, a key gauge of
manufacturing growth fell to 52 in May, down 0.9 from 52.9 in
April. While the drop is an indication that the economy is
slowing down, the economy is still in an expansionist mode,
analysts point out. The slowdown only becomes worrisome if the
index drops below 50. And that may be a long way away.