Dear Fellow Investor,
For the first time in five years, the Dow Jones closed below 8,000 yesterday. This sharp plunge -- more than 400 points on the Dow -- broke through the October lows and shattered the bottom that was seemingly in place.
Clearly, my market call for the October 10 bottom is no longer valid, as investor sentiment has taken a turn for the worst.
Sentiment has plummeted since investors realized that the incoming U.S. presidential administration would pursue anti-growth economic policies, such as higher taxes, stronger organized labor and increasing government intervention in businesses.
Now, we all know that the only way to overcome an economic crisis is to grow our way out of it. So this type of proposed action by the new administration has investors on edge, and they're selling practically everything -- good and bad companies.
And that's not all that's weighing heavily on investors' minds right now. Just look at some recent and dismal economic news that's hitting consumer confidence hard:
Retail sales plunged 2.8% in October – the largest monthly drop since 1947. In all, retail sales have tumbled every month since July, creating a longer losing streak than the 2001 recession. In addition, the auto industry is struggling with this lull in buying: Car sales plunged 5.5% last month. And now, "The Big Three" -- GM, Ford and Chrysler – are requesting massive loans to support their businesses.
So bad economic news coupled with concerns over the new administration's proposed actions has sent the domestic markets spiraling since Election Day. In fact, after today's more than 350-point drop, the Dow has lost around 20% since November 4.
The Ripple Effect
As you know, this turmoil hasn't been limited to the U.S. borders. The global economic slowdown is dragging down economies and stock markets around the globe. And in recent weeks, Chinese stocks have taken some big hits as investors question the sustainability of China's economic growth.
In fact, Hong Kong's Hang Seng index rallied dramatically starting on October 28 through November 10, and gained 32% during this up move. But in the past 10 days, the Hang Seng index has retraced these steps and lost nearly 17%.
Now, there's no doubt that China will feel the repercussions of the global economic slowdown. But there is little doubt in my mind that China will still be the fastest growing major economy next year.
That's because, as we discussed last week, China isn't taking this economic slowdown sitting down. The Chinese government's recently announced $586 billion stimulus package should help rejuvenate economic growth within the country by generating 4% GDP growth and creating 50 million new jobs.
Overall, China should be able to grow around 7% in 2009, a stark contrast to stagnant or negative growth that most nations around the world will post next year. As a result, I continue to think that China provides the best opportunities for investment right now. To learn how you too can profit from China's robust economic growth, join China Strategy today.
Robert Hsu
