Friday, November 14, 2008

What's Going On In China?

Current forecasts: 6% growth. Current situation in sectors previously driven by China: below bottom. Commodities are easiest to track, nothing good is going on there. Spot shipping prices, according to today's CNBC talk, are below costs. Good information from Diana Shipping Inc (DSX): Fleet Employment. As you can see, 7 of 12 Panamax class ships don't have contracts beyond Feb 2009, which is 3 months from now. A year ago, all ships were contracted at least one year forward. This is one of the best dry bulk carriers in the world!

Then we have stimulus package from Chinese government. It's scary. It tells me that building activity in China stopped cold and needs government money to continue. The package itself is OK, it will help economy. But the only possible reason for it is hard drop of business building activity. Half a year ago, China was building like crazy. That's the country which produced half of steel in the world and consumed most of it. Businesses stop building for one reason: they don't need extra capacity. Which means: they don't see growth in near future. If recession in Europe and USA is helped by crisis in China, we might get full blown global depression.

I might be too scared right now. But there are good reasons to be scared. Total lack of reliable economic data from China doesn't calm me down.

Can we make money from this? The best I can come with: don't buy any Chinese stocks or companies with sales in China. Wal-Mart (WMT) can get better deals from suppliers, one more reason to invest in it.

Full disclosure: at the time of publication author did not have any positions in DSX, WMT or any China based company. Positions can change any time.

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