May export numbers indicated definitive improvement in the Chinese economy. Exports rose 15.3% month-over-month, well above the projected 6.8% increase by market observers. Additionally, the 15.3% growth represents a substantive increase over April’s 4.9% increase in exports.
Chinese imports also grew 12.7% on an annualized basis.
May’s export growth is lower than the roughly 20% growth in exports the Chinese economy experienced in 2010. But it does indicate growth in a sector you would normally assume to be adversely affected by global macroeconomic concerns.
According to reports, an increase in demand from the U.S. outweighed the negative ramifications of slowing European growth.
Investors could expect these numbers to become progressively better over the summer as the result of recently enacted stimulus by the Chinese government. As the government-approved stimulus package materializes, trade statistics should reflect the improving health of the Chinese economy.
Export-based growth is unlikely to be a sustainable manner through which the Chinese economy can maintain growth. But in light of the global financial crisis, a healthy export sector is certainly not a bad thing for China in the near-term.
Assuming this growth is indicative of an increasingly healthy Chinese economy, most stocks with Chinese exposure should react positively over the near-term. That’s barring further downside on the European front, which would, hypothetically, drag down all stocks, no matter how healthy their fundamentals are.
As a result, investors should look into stocks as wide-ranging as Caterpillar (CAT, quote) to Yum! Brands (YUM, quote). A rising Chinese economy, which in light of recent economic stimulus, is likely to continue, will probably lift all boats with exposure to the country. Assuming euro zone problems don’t absolutely overwhelm markets, Chinese plays could be a good long position here.
Disclosure: Author’s immediate family long YUM and CAT