Yves Goes Bullish on China Stocks

Yves has made some bold calls recently.  In 2007 he called the top in China stocks. Now he calls a bottom and says it is time to go long.  Here is his chart, and below his commentary:

We are now very bullish on Chinese shares. We called the top here in 2007. It was a few weeks before the market hit 6,000 on the Shanghai Index. The piece was called Party Like Its 1999. It focused on similarities that bubbles have. The rate of ascent was becoming parabolic and was unsustainable.

For most of the punditry, it was the Chinese miracle. I guess people never learn. Participants have the hardest of times to shake off their biases once in a bubble. 

I have been a witness to long term negative sentiment toward Chinese shares in the 2003-2004 period. I felt that the sequence had the hallmark of a final C wave. I got very excited in 2005. I felt very strong that the market was prepared to go up in a final 5th wave sequence. I was right. From a base level of around 1,000 the index proceeded to trade to 6,000 in a little bit over two years.

We did explain to our subscribers recently that there are great dislocations between the economic reality and the stock index behaviour. It is even more prevalent with the Shanghai market.

Years of impressive growth have never guaranteed a higher market. Why would it matter now?

The stocks have this uncanny ability to confuse most participants anyways.

We have held to our bearish stance since 2007 to only turn to the bull camp recently.

We are very bullish. We think that we are facing a wave 3 of 3. This large sequence could in fact propel the market back to its old highs. The market could double and even triple from here. 

We remember a time where Chinese funds were the rage. They are not anymore as they have lost their popularity. Long term sentiment is very negative toward China. We believe it is consistent with the psychology of a corrective wave two.

We think Asia has the upper hand in the debate of credits versus debits. Most of our work is derived from behavioural economics. We think it better lends itself to today's environment. 

Market observers are out of touch with today's world. Do yourself a favour to dig in the past as it is very revealing of our future. 

Yves Lamoureux http://lamoureuxandco.com/

Comments

[MP]

2008 bottom still an ABC up to current and still in progress for B...then C down till 2016 December

[dlu]

agree.

[Virgil]

http://www.businessinsider.com/goldman-no-american-manufacturing-renaissance-2013-3

At least in the traditional energy intensive industries and exporters. This would seem to suggest that Chinese export driven growth to N. America has not reached its end.

I'm not surprised as I've believed for a long time in the post growth second economy and it's only accelerating with the so called "Maker" movement decentralizing production of goods.

[yelnick]

Virgil, there is a lot of excitement about the Maker revolution in VC circles, but it is awfully early. It might not scale until the 2020s after the Great Recession finally ends, and the combo of 3D printing, robotics and genetic manipulation powers a "digital meets physical" rapid growth period. Manufacturing would come back, but highly robotized or distributed, not in factories of old. The risk we run with our incoherent industrial policy and zombie banks is that China gets there first. What this means for China's hard landing or not is unclear; Yves thinks the Shanghai is a buy, as above, as do some very clever and secretive fund managers I know.

[Virgil]

Yel,

I'll take your word for it about the SSEC. The daily chart looks bullish to me, but the weekly looks rather ambiguous.

I agree with your timing about the Makers. It's a novelty until they get the kinks worked out with materials, quality, human interfaces, and the right applications (drones are great for bombing and spying but most people I know not involved in divorce proceedings are generally not in the market for that stuff). System resilience is something I hope they're working on. A flash crash is the last thing we need once Fedex, UPS, & Burlington Northern start flying these things all over the place.

I'm pretty optimistic that something becomes of it all. I'm not sure the Chinese will be able to progress away from their comparative advantage economy. Not to sound (too) biased, but I think the lack of rule of law and personal property rights is going to hamper their modernization efforts.

I backed the 3D doodler on kickstarter and am now anxiously awaiting delivery. What the hell I'm going to do with it I'm not sure, but it should be fun figuring that out.

[Virgil]

I guess the result of decentralization and diffusion of technology will be that Fedex et al will not be around. The big crashes come about because a few too-big-too-fail agents end up failing anyway but in much bigger ways than many smaller ones. So the new manufacturing revolution could ultimately end up creating a much more sound an healthy economy, but perhaps only after some real disruption.