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Category: Transportation
Why China is Bullish on China
Why China is Bullish on China

So why are the Chinese so bullish on China?

So why are the Chinese so bullish on China?

Jittery investors on Wall Street are running for the fire exits this week in a high state of anxiety about European debt, especially Greek and Portuguese obligations. We often hear that investments in U.S. companies or Chinese ADRs have nothing to do with Greece or Portugal, and on the face of it, that is true enough. But the Standard and Poor’s Index and even more so, the China ADR Index, both tell us a lot about investors’ global appetite for risk.

About: Chinese ADRs , China ADR Index, Chinese economy, Shanghai World Expo, Shanghai General Motors, American Dairy (ADY), iShares FTSE/Xinhua A50 China Index ETF
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When the spiraling chaos in Greece raises investors’ risk aversion, world markets feel the effects. The same thing happened when the Dubai bubble burst and investors worldwide caught a case of nerves, dumping many of their stock holdings whether or not they were directly tied to the Middle East.

But keep in mind, the latest numbers from China add to the case that we have been making about the Chinese economy. Although there are economic areas of real concern such as real estate which the government is trying to deflate, in general growth has been extremely strong. An 11.9% annualized growth rate during the first quarter is remarkable. But there are always those who distrust numbers from Beijing.

So why are the Chinese so bullish on China? In short, because the evidence of robust economic activity is right before their eyes, and not just in the towering buildings shooting up around them.

So why are the Chinese so bullish on China?

Impressive numbers don’t come only from Beijing. China’s financial capital, Shanghai, announced that retail sales jumped 22 percent during the five-day May Day holiday – the highest growth rate since 2005. This year’s shopping boom was 7.9 percentage points higher than during the May Day holiday last year and not solely because of the Shanghai World Expo.

Gold and jewelry were the most popular products in Shanghai, with sales soaring 53.5 percent. Luxury sales in the ritzy Luwan district of Shanghai surged 19 percent from a year ago after the world's top brands, including Louis Vuitton, Coach and Ermenegildo Zegna, opened their flagship stores there. Obviously the people of Shanghai are feeling flush.

Don’t trust Chinese numbers? Shanghai General Motors reports April vehicle sales jumped 62 percent to 89,562 units, with Buicks making up half of that extraordinary number. Chevy and Cadillac sales doubled.

The Chinese are also gambling more in Macau than Americans are in Las Vegas. Macau's gaming sector raked in $1.76 billion in April, the highest monthly revenue harvest there on record.

While investors in New York watched stocks tumble, The Shanghai Index recorded a small gain of 0.8 percent on Wednesday.

So why are the Chinese so bullish on China?

Although China remains bullish on most fronts, foreign investors remain nervous. At the China Stock Digest we sold off two investments from our model portfolio, including American Dairy (ADY), not because of worry about their fundamentals but because global investor sentiment had turned the trend against small caps worldwide.

By the same token, foreign investors are short selling China’s stocks through a yuan-denominated exchange-traded fund at the highest rate in more than two years. Data from Bloomberg shows that the ratio of short selling to total turnover on the iShares FTSE/Xinhua A50 China Index ETF (HKG: 2823) has reached 39 percent.

It may not be fair to investors that chaos in one part of the world affects investments in another but that is how globalized markets are working in these unsettled times. The top priority for investors is to hold the most profitable, best value stocks in anticipation of the next trend in the business cycle.

Dividend Stock Union Pacific Chugs Along With A New Quarterly Dividend Hike
Dividend Stock Union Pacific Chugs Along With A New Quarterly Dividend Hike

Union Pacific Ratchets Dividend, Capital Spending

Union Pacific Ratchets Dividend, Capital Spending
About: Union Pacific (NYSE: UNP), Union Pacific, largest U.S. railroad operator, Nebraska-based Union Pacific, quarterly dividend, dividend increase Bookmark and Share

Union Pacific (NYSE: UNP), the largest U.S. railroad operator, said it will increase its quarterly by 22% to 33 cents a share and raise its 2010 capital spending plan by $100 million to $2.6 billion due to increased shipping volumes.

The new dividend is payable on July 1st to shareholders of record on May 28th.

Nebraska-based Union Pacific lasted raised its dividend in 2008, but with news of the latest dividend increase, the company's payout has more than tripled since 2002.

A dividend hike and increased capital spending plans are positive signs from a company that is as economically sensitive as Union Pacific is.

Dividend Stock Union Pacific Chugs Along With A New Quarterly Dividend Hike

Transportation firms provide investors with good insight regarding the overall health of the economy and the fact that UP is seeing more robust shipping volumes is good news.

The company also said it may bring back some of the 2,800 workers it furloughed last year. On top of the dividend increase, Union Pacific is rewarding shareholders another way with plans to extend a share repurchase plan that expires in March 2011.

The company did not specify the amount of that buyback, but the current plan allows for the repurchase of 32.6 million shares.

China Economy: The Good, the Bad and the Ugly
China Economy: The Good, the Bad and the Ugly

China's Economy: The Good, the Bad and the Ugly

China Economy: The Good, the Bad and the Ugly

About: People’s Bank of China (PBOC), China's Economic Growth, Chinese economy, China’s headline growth rate, Goldman Sachs, China’s foreign trade, Chinese stocks, China Daily
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China’s growth has become so hyperactive this year that most news comes with a combination of negative and positive commentary. The latest industrial production figures are a good case in point.

A new report shows that industrial production accelerated in China much more than expected in March, exceeding trends more than any time since 1998. The People’s Bank of China (PBOC) says the industrial output gap, which gauges actual production against so-called potential, widened to 3.06 percent last month.

Added to that was a little-noticed uptick in China’s headline growth rate. Just last week, every news outlet was reporting that GDP had increased by a greater-than-expected 11.9 percent. But recently the PBOC slipped a note onto its website reporting that, at a seasonally adjusted annualized rate, gross domestic product rose 12.2 percent in the first quarter from the previous three months.

Good news? Well Bloomberg took a negative view of accelerating industrial production and growth of more than 12 percent in the first quarter. The financial news hub highlighted the danger of “overheating” in the Chinese economy. The government has acknowledged that the real estate market is overheating and has taken a number of steps specifically designed to hobble real estate speculators.

We see the previously-mentioned indicators as continuing good news for investors. In fact Goldman Sachs is predicting a 25 percent rally in Chinese stocks by year’s end. And, there is more bullish news.

China Economy: The Good, the Bad and the Ugly

China’s central bank says foreign trade will continue to improve this quarter and thetrade surplus will continue to decline partly due to the weak global economic recovery. Last month China’s foreign trade actually registered a deficit, its first in six years.

Despite its cautious forecast, the PBOC says exports will continue to expand by more than 20 percent this year. Import growth will also remain at a high level due to strong Chinese demand and rising international commodity prices. In short, China is edging closer to balanced foreign trade.

An interest rate increase also appears to be on the horizon in China as Beijing tries to balance the benefits of explosive growth with the dangers high inflation and excess industrial capacity and investment.

Is this good or bad?

The answer is simple. Wouldn’t the U.S prefer to have China’s challenges rather than facing ongoing sluggish growth and high unemployment?

Of course it would.

China has just posted new employment figures showing that 2.89 million new jobs were created in China's urban areas during the first three months this year. That extraordinary feat shows that China has created fully 32 percent of the jobs targeted for the entire year during the first quarter.

China Economy: The Good, the Bad and the Ugly

Oh yes, and retail sales are exceeding expectations also. Clearly this is good news, demonstrating a vibrantly growing economy, although not one without challenges. Because China has a command economy, it is better able to force rapid change than many western democracies.

So much for the good and bad. The ugly? Take a look at the slide show of the latest entries on display at the Beijing Auto Show from China Daily and see if you can spot it: