The answer is simple - China's current policy of growth at any price that results in profitless growth (see my previous post Crouching tiger, hidden profits).
Divergence explained.
Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.
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2 comments:
Numerous wealth management / private banking surveys of high-net-worth Chinese have shown that the majority of them are considering leaving China to preserve their "hard earned" money. Perhaps they are selling domestic listed China stocks and moving assets to US, Canada, Australia, UK, and other "safe havens." You might have even benefited from the Chinese "new money" by being in Vancouver, where Chinese money have been a strong "marginal buyer". Last time I visited, the trendy restaurants were filled with Chinese college students driving BMWs and other luxury cars, and spending their parents' money (much like Bo Xilai's son). Their parents might be busy selling Shanghai Composite and moving money to buy Canada houses or other investments to get foreign permanent residency. Even if they are bullish on Chinese companies, the kids can always open a US/Canadian brokerage account and buy some FXI.
I agree with the main conclusion, but might add that China's actual growth (probably better observed on the ground) may be far worse than many in the US are currently expecting. If US profit growth from China disappoints, on top of currently stagnating profits, the size of the divergence may contract.
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