There has been a lot of talk on whether China is headed for a soft or hard landing as the markets expect the booming economy to cool down in the coming years.
Louis Basenese at Wall Street Daily seems to side with the latter, giving seven signs China may be headed toward recession:
- China's GDP grew by 8.9% (annualized) over the last quarter, but the government has lowered its GDP growth target to 7.5%.
- The GDP numbers are unreliable. "Last month, the country's statistics bureau revealed that local governments were forcing businesses to report 'seriously untrue' data."
- The latest report on imports (primarily machinery, which supports construction) showed a 14% drop.
- Manufacturing is down. "In March, the HSBC/Markit Flash Purchasing Manager's Index (PMI) hit a four-month low. The latest reading came in at 48.1 ... anything below 50 signals a contraction."
- Hiring in China has dropped to a two-year low.
- Government debt is rising. Local government debt, which now stands at 25% of GDP, is being collateralized by inflated real estate.
- Property values are falling. "Of the 70 cities tracked by the National Bureau of Statistics, prices fell in 48 cities in January and not one city experienced gains."
Also, China may soon see its first corporate bond default. Shandong Helon has about $63.43 million in commercial paper due April 15, and the market does not expect the company will be able to meet the need, according to CNBC.
In the long run, many investors expect the event to aid the development of China's bond market. If the government does not bail out the company, this default could cause investors to take credit risk in China more seriously. It would test China's legal system. In turn, smaller companies may get better financing in the future.
However, in the short term, this will likely lead to higher financing costs, hurting smaller companies, says CEO of brokerage CLSA Frasier Howie. (via CNBC)
Business section: Investing ideas
What do you think of China's prospects? Will these headwinds keep the fastest growing country on the planet from continuing its rise to the top?
For ideas on how to look into the market, we ran a screen on U.S.-traded stocks of Chinese companies for those that short-sellers are becoming less bearish on. We screened for those seeing significant decreases in shares shorted month over month, indicating short-sellers expect these names to outperform.
Are you bullish on these names, despite the headwinds China is facing? (Click here to access free, interactive tools to analyze these ideas.)
1. FushiCopperweld (Nasdaq: FSIN): Develops, designs, manufactures, markets, and distributes bimetallic wire products, principally copper-clad aluminum (CCA) and copper-clad steel (CCS). Shares shorted have decreased from 6.91M to 5.25M over the last month, a decrease which represents about 7.16% of the company's float of 23.19M shares
2. Giant Interactive Group (NYSE: GA): Develops and operates online games in the People's Republic of China. Shares shorted have decreased from 4.26M to 2.74M over the last month, a decrease which represents about 1.52% of the company's float of 99.91M shares
3. LDK Solar (NYSE: LDK): Engages in the design, development, manufacture, and marketing of photovoltaic (PV) products; and development of power plant projects. Shares shorted have decreased from 20.90M to 18.14M over the last month, a decrease which represents about 4.38% of the company's float of 63.05M shares
4. Noah Holdings Limited (Nasdaq: NOAH): Engages in the distribution of wealth management products to the high net worth population in China. Shares shorted have decreased from 1.49M to 1.15M over the last month, a decrease which represents about 1.95% of the company's float of 17.45M shares
5. SouFun Holdings: Provides marketing, listing, technology, and information consultancy services to real estate and home furnishing industries in the People's Republic of China. Shares shorted have decreased from 1.13M to 883.94K over the last month, a decrease which represents about 1.09% of the company's float of 22.62M shares
6. Youku.com (Nasdaq: YOKU): Operates as an Internet television company in the People's Republic of China. Shares shorted have decreased from 11.20M to 8.41M over the last month, a decrease which represents about 4.29% of the company's float of 65.01M shares.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Alexander Crawford does not own any of the shares mentioned above. Short data sourced from Yahoo! Finance.
