Dear Fellow Investor,
The bloodbath continued this week with global stock markets starting the first week of March on a pretty dour note. And things didn't get any better as the week progressed…
More discouraging news from two of the U.S.'s largest financial institutions -- Citigroup and AIG -- hit the stock markets hard on Monday and Tuesday. Then, we received a little reprieve on Wednesday as investors anxiously awaited more details on the possibility of China adding more funds to its already massive $586 billion stimulus plan.
But as we all learned early this morning, the extra boost to China's funding plan didn't materialize.
This decision disappointed investors and sent stocks spiraling downward again. The Dow & the S&P 500 both lost more than 3% in trading today. What's interesting, though, is that Shanghai-traded shares continued to move higher -- up 1% today and up 22% year to date.
These stocks were able to buck the trend today, because there were some positive developments from China's congressional meetings this week. While the Chinese government didn't announce adding any new funds to the current stimulus plan, officials did note that they would increase government spending in 2009.
With plans to spend about $42.84 billion this year -- an increase of 25% -- the government hopes to create even more jobs, boost the export sector and ultimately overcome the current economic slowdown. Much of the government spending will be spent on education, healthcare and social security.
Although this wasn't exactly the type of spending that investors were looking for, it still shows that the Chinese government is willing to support the economy. In fact, Chinese Premier Wen Jiabao stated that China could achieve 8% growth in 2009.
How to Profit Today
If you recall, we've discussed a lot lately why China is able to grow despite the economic recession plaguing the rest of the world. Mainly, it's due to steps the Chinese government has taken to boost GDP growth in the country.
Along with its recent plans to increase government spending, Chinese policymakers have taken bold action throughout the entire global crisis. It was the first country to slash interest rates, and create a stimulus plan that will actually boost economic growth with job creation and infrastructure spending.
The Chinese government has been able to undertake this huge stimulus spending --without incurring any foreign debt -- because it is flush with cash ($2 trillion foreign reserve). So as the global economic crisis worsens, China has the ability to support itself and actually improve its economy.
That's why I have continued to recommended strategic investments taking advantage of China's economic strength and stimulus spending plans. Two of my favorite plays along these lines have show great resiliency over the past four months -- a time when the S&P 500 has declined 29%.
- A Chinese ETF profiting from the strength of Shanghai-traded shares. As the Chinese economy continues to turn around, this fund will benefit greatly from the strength of the Chinese economy and shares traded in Mainland China. In fact, the fund has gained 32% in the past four months.
- China's Leading Aluminum Producer. This company is benefiting greatly from the increase in infrastructure spending in China due to the country's stimulus package. The stock is up 28% in the past four months.
These are just two of the ways that my China Strategy subscribers are set to benefit from the strength of the Chinese economy this year. In fact, I'm implementing a new strategy in China Strategy today to help my readers hedge their current holdings and make money despite the tough economic times.
I'll be making a recommendation on the short side in today's China Strategy dispatch. That isn't an opportunity that you want to miss! Join China Strategy today and learn the best ways to profit in the current economic and financial environment.
Sincerely,
Robert Hsu
