Tuesday, September 01, 2009

Bubble Lending Drives Chinese Manufacturing

Okay, now I'll finally admit that Chinese equities have probably formed a bubble. Here's some hard evidence:

China’s manufacturing expanded at the fastest pace in 16 months in August, driven by record lending in the first half of the year, two surveys showed.
(snip)

Gains in output, orders and jobs added to evidence that Premier Wen Jiabao can meet his 8 percent growth target for the year as a stimulus package counters
falling exports.



That second snippet goes to show that Chinese data is just as subject to puffery and political manipulation as U.S. data. This unfortunate tendency is something that investors all over the world will just have to accept. Chinese investors may be nervous but I'm not. Any bursting of this bubble makes it cheaper for me to add to my FXI holdings, on the premise that China's pursuit of natural resources lays a foundation for long-term growth.

Nota bene: Anthony J. Alfidi is long FXI with a short straddle.