Will the Chinese stimulus make you money?
Today's Financial News - Posted November 10, 2008
China cuts a check for over $500 billion. Its stock market soared on the news. But how much impact will Chinese spending have on American stocks? The answer is not good.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): There used to be a saying that said something like, “a bear market in one country means there is a bull in another.” When the world was not connected by fiber-optic data lines and trading consisted of real money and real goods, the adage was perfectly true.
But now that communications are instantaneous, the economy is fueled by artificial leverage, and the colleague you are chatting with is halfway across the globe, the economy is much more interconnected. With England, Europe, Russia, Brazil, and China all suffering from economic peril, the notion of a global economy has never been more prevalent.
More free money
China was the latest country to unveil its monumental plans to deal with its slowing economy. With economic growth estimated to plunge from last year’s 12% rate to as low as 6% this year, the country is in a dire situation.
America is not the only one squealing from the pain of a drastically slowed economy. And we are not the only ones tossing around hundreds of billions of dollars. China announced yesterday it is shelling out $586 billion in an effort to boost the nation’s infrastructure industry and its social welfare programs.
Aside from the fact that China now has $500 billion less to use to purchase America’s debt, this announcement will spread ripples throughout the global economy.
So far, America’s bailout efforts have done little to spur economic growth. They have merely been tourniquets to stop the widespread bleeding in the financial sector. But China, on the other hand, is cutting checks in an effort to keep its country building and expanding.
That is good news for smart traders. Investors in companies like China Railway Group, Angang Steel, and China National Building Material are all smiling today as news of the stimulus led to a big surge in valuations.
Here in the United States, companies like Caterpillar (NYSE:CAT) and Oshkosh (NYSE:OSK) could benefit from the spending in China or other countries that follow its lead. But I would be cautious entering these domestic plays.
First, analysts are having a hard time believing China’s figure is accurate. Most of the spending initiatives announced in yesterday’s package were already in the budget. Many folks believe China’s plan is nothing more than a public-relations stunt designed to change investor morale.
Beyond that, it will take more than a $500 billion plan from China to get shares of Caterpillar or Oshkosh soaring. A lot of money has to change hands on its way from China before it will find its way into the pockets of American shareholders.
Your best bet is to look somewhere in the middle. ABB (NYSE:ABB) is one of the few companies to remain in positive territory today. Based in Switzerland, it is somewhat removed from turmoil at home, plus as a major provider to the world’s power industry, it stands to benefit from any substantial infrastructure products. It is your best bet in a losing hand.
There is still plenty of money exchanging hands, which means there are moneymaking opportunities available. But you have to be smart and know where to look.
Next Article: China stimulus package seems enormous. But…
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