BCA: Is China Losing Competitiveness

Tuesday, August 26th, 2008

There is little evidence to suggest that Chinese manufacturing competitiveness has deteriorated meaningfully.

The mainstream media has been filled with reports about Chinese companies closing production facilities due to rising costs. Some analysts have concluded that China is quickly losing its competitive edge, and international producers are moving to other countries. In reality, there has been no meaningful decline of China’s export market share, particularly when exports of oil-producing countries are excluded. Indeed, China’s slowing export growth in recent months is a reflection of changing global market conditions rather than a deterioration in Chinese producers’ competitiveness. Rising input costs due to higher commodities prices are not unique to China: manufacturers around the world are suffering similar cost pressures and margin squeezes. In addition, the RMB’s appreciation has not been excessive, rising at a 3.5% annual rate in trade-weighted terms since its 2005 de-peg from the U.S. dollar. The trade-weighted yuan is still below its 2002 levels, when the economy was struggling with a deflationary shock. Finally, recent weakness in the export sector can be partially attributed to the Chinese government’s voluntary export restraints, which have been part of the country’s broader growth-rebalancing strategy. These policies could be removed any time if excessive weakness develops. Already, the government has increased VAT rebates for textile and garment exporters since the beginning of the month.

http://www.bcaresearch.com/

People who read this post also read these:

• Rob Fraim’s Call on Energy
• The Devil’s Dictionary for Financial Markets
• Jim Rogers: All My New Money Is Going To Commodities and China
• Why the selloff in commodities and emerging markets?
• Where is the Boom, and the Doom?

Tags: China, Commodities, Dollar, Economy, energy, International, RMB, Yuan
Posted in China, Commodities, Economy, Emerging Markets, FXI, FXP, International Markets, Markets, Russia, inflation | No Comments »

Short ETFs - Portfolio insurance

Tuesday, January 29th, 2008

Jan. 29, 2008 - Short and UltraShort Funds provide investors with highly liquid inverse exposure to the markets as represented by widely held benchmark indices.

Check out these charts for a couple of good examples. Most investors have difficulty grasping the idea of taking ’short’ positions or bets against the very markets that they are investing in. These new ’short’ ETFs do not require a great deal of sophistication or a margin account for the average investor to get some portfolio insurance.

iShares FTSE Xinhua 25 (FXI) vs. ProShares UltraShort FTSE Xinhua 25 (FXP)

iShares MSCI Emerging Markets (EEM) vs. ProShares Short MSCI Emerging Markets (EUM)

 ProShares Ultra Financials vs. Proshares UltraShort Financials (Dow Jones Financial Index(sm))

If you believe that there is more downside to come, then its still not too late to get some downside protection.

Don Coxe, in his recommendations from Basic Points, January 2008, warns:

The financial crisis is not centered in stock markets. Its primary locus is in financial derivatives, and in their impact on the stock prices of leading banks. Until the downward drift of bank stocks and the upward drift of derivative debt yields are reversed, the stock market will continue to slide. Keep overall equity exposure to minimums, and emphasize quality.

People who read this post also read these:

• S&P 500 Short Interest Rises Again
• More Carry-Trade commentary
• LIBOR, TED Spread, and Fed Funds
• Yen’s Strength [has been] profoundly negative for global markets
• Year of the Rats: Don Coxe, Basic Points

Tags: Investment Strategy, Technical Analysis
Posted in EEM, ETFs, EUM, FXI, FXP | No Comments »