Look past the herd for China forecast


Published in the Geelong Advertiser - March 2014 by Dale Gillham

Commentators have been saying that China is one bubble waiting to pop, however I don’t subscribe to fear campaigns and neither should you. 

So is there cause for concern for investors?

Firstly, the Chinese economy is expected to achieve around 7.5 per cent growth, and could fall to around 7.0 per cent, which is still high relative to word standards at closer to 3.0 per cent. 

What is interesting is that a few years ago when Chinese growth was at dizzying heights of around 11.0 per cent, forecasts were indicating a fall to around 7.0 per cent.

So predictions have been right, only there was no crash to this level as the fear mongers had warned. 

Given the decline that has already occurred, I believe much of the hot air is out the bubble.

Now, that is not to say there won’t be a further deterioration in economic conditions for our Asian partners. 

What we know however is that markets will react to economic news in the short term as this is what markets do, and when fear or uncertainty takes over the herd the big players stand to make a lot of money. 

If like me you prefer to see beyond the hype, then you simply must learn how it’s done, and also consider this:

  1. If you react to news you are operating as part of the herd, which runs on emotion and not logic. 

  2. Those who have a strategy in place designed to preserve capital are prepared to make decisions when conditions warrant action.

  3. Above all else, be the tortoise not the hare, as chasing the next best thing will not see you win the race over the long term. 

So what do we expect in the market?

The Australian market has been holding up well despite the volatility seen across Asian markets. 

The start of this week saw three days in decline, weighed down by mining and resources stocks, however, the buyers came back in late on Wednesday and buying continued to drive the market higher on Thursday pushing the All Ordinaries Index back above 5400 points, or 50 per cent of the weekly range, which means the overall decline for the week was softened.

The current volatility is to be expected while investors are being bombarded by negative news and this is likely to lead to a further decline next week. 

That said savvy investors know that the Australian market will remain bullish until it confirms otherwise. 


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