Emerging market of the day: China

Chinese markets (FXI, quote) outperformed their Asian peers to start the week off on a bright note.

Image courtesy SF Brit: http://www.everystockphoto.com/photographer.php?photographer_id=127219

Shanghai skyline at night

Both the Shanghai Composite and Hong Kong’s Hang Seng (EWH, quote) finished Monday trading higher, with the Shanghai index up more than a percent, while Hong Kong traded about a quarter of a percent higher.

While the Shanghai exchange has struggled this year, Mainland Chinese equities have had a strong December. Stocks lept four percent last week off of the index’s 2009 lows, and Shanghai stocks continued their rally to start off the wee. Shanghai traded higher with heavy volume in spite of mixed data.

Chinese import and export data grew at a slower than expected rate year-over-year in spite of earlier manufacturing data pointing to a potential rebound in these numbers.

However, both industrial output and retail sales beat expectations, pushing stocks higher. According to Bloomberg, “(i)ndustrial production climbed 10.1 percent last month, while retail sales grew 14.9 percent, the statistics bureau said yesterday. Economists in a Bloomberg survey had a median estimate of 9.8 percent growth in industrial production and a 14.6 percent increase in retail sales.”

In all likelihood, China’s industrial production outweighed export data as many traders place more emphasis on industrial production as a barometer for the country’s economic recovery. As well, the positive retail data gave a boost to consumer discretionary stocks, many of which have struggled this year.

As we have written before, this positive data does not mean it’s time to jump into stocks listed in Mainland China. Given the opaque nature of Chinese markets, suspect accounting practices, and the lack of faith in equities by the Chinese populace as a whole, investing in Chinese-listed equities remains rather risky. Instead, investors looking for exposure to China should continue to invest in securities listed in the United States or Hong Kong.


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