Diving Trade, Troubled Markets, and Cautious Investors Plague China

Investors across the world had a good week over the past five days, and you could be forgiven for thinking Hong Kong's Hang Seng's (HSIINDICES: ^HSI  ) 4% rise this week was a reason for celebration – particularly after the index has plunged 8% year to date. Yet, questions and concerns linger on in China, and trade data stepped into the spotlight this week, as the latest victim of the country's ongoing slowdown. Let's dive in to what you need to know.

Trade falls, questions rise
Exports, and a favorable balance of trade, helped China become what it is today, and exports have dominated the slowdown talk this week over the world's second-largest economy. Beijing reported a 3.1% dip in exports for June, falling from May's slight gain, and diving well below economists' modest projections of expansion.

Chinese trade numbers have always been taken with some skepticism due to the government's history of overinflating some statistics, and China's trade surplus of $27.1 billion has, once again, been hit with criticism, particularly as it represented a gain over May's figure, even as export declines far outpaced the fall in imports. Regardless of how the final trade balance ended, China investors need to be careful over the country's rapidly declining ability to rely on favorable trade in order to prop up its economy.

June's figure may not be the end of China's ongoing trade problems, however. A strong yuan, and rising labor costs, have some predicting that trade will continue to suffer in the third quarter, and individual firms' plans aren't helping. Sinopec (NYSE: SHI  ) , China's major oil leader, won't export diesel in July, its third consecutive month of halting exports, and could cut diesel exports for the entire third quarter. Sinopec's far from in trouble as one of the largest firms in the world – and maybe China's safest stock for investors looking for a secure haven in the country's slowdown – but declining exports could send shockwaves through the Chinese market if this trend keeps up. Already, Sinopec's stock has shed 12% year to date as investors pull back from China's troubles.

That sort of blow to one of the nation's biggest players is exemplary of how the country's big picture problems have haunted stocks -- even those far less tied to trade and similar macroeconomic indicators. Baidu's (NASDAQ: BIDU  ) shares, for instance, have dropped nearly 7% year to date despite the company's stranglehold on the Chinese search market. While Baidu's market share has declined slightly due to its rivals' growth, the firm is perfectly placed to take advantage of a growing Chinese middle class that's migrating to the web. That speaks well for Baidu's long-term trend – yet market fears over China's economy, and Baidu's rivals, have taken the stock down over the past six months. It's a problem of the market that will only be worked out over time.

For China investors, thinking in the long term – a plan embraced by smart investors regardless of the market – is the best way to go. As the world's second-largest economy inevitably slows from its rapid growth of the recent past, expect Wall Street disappointment and volatility to dominate Chinese stocks. Until the market can get a handle on where China's long-term future will take it, follow the old axiom: Buy into the best companies, and buy into the high-risk fliers only if you're willing to make a risky bet.

The best market in China?

Chinese growth stocks have become synonymous with boom-or-bust potential, but is this high-risk, high-reward strategy really the only way to play this market? There's a better way: Invest in the global firms that have taken advantage of China's potential, and used it to reward shareholders. China's auto market has become the largest in the world, and a recent Motley Fool report, "2 Automakers to Buy for a Surging Chinese Market," names two global giants poised to reap big gains that could drive big profits for investors. You can read this report right now for free -- just click here to get started.


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9/23/2014 4:01 AM
^HSI $23837.07 Down -118.42 -0.49%
Hang Seng CAPS Rating: No stars
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SHI $34.40 Down -0.13 -0.38%
Sinopec Shanghai P… CAPS Rating: ****

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