Why Asian stocks are rallying

For traders, lower growth forecasts may guarantee that the Chinese government and the People's Bank will move more vigorously to stimulate the economy.

By Jim J. Jubak Oct 9, 2012 5:34PM
Image: China (Brand X/SuperStock)There was very interesting action in China's stock markets overnight.

Despite cuts in growth forecasts from the International Monetary fund, Chinese stocks in particular and Asian stocks in general climbed overnight. That contrasts with a drop in European and U.S. stocks in Tuesday’s sessions.

To pick some specific examples, the Shanghai Composite climbed 1.97% and Hong Kong's Hang Seng index was up 0.54%. The German DAX index fell 0.78% and the Spanish IBEX 35 was down 1.85%. In the United States, the Standard & Poor's 500 Index ($INX) closed down about 1% and the Nasdaq Composite Index($COMPX) fell 1.52% as traders and investors continued to sell shares of Apple (AAPL) on fears that its earnings will disappoint.

The difference in the behavior of the Chinese and European/U.S. markets?

Those developed economy markets are seeing forecasts for slower growth as bad news. In the United States, those forecasts are coming against a background of fears that third quarter earnings season, which officially begins Tuesday when Alcoa (AA) reports after the close in New York, will disappoint. The forecast right now is for a year-to-year decline of just a tad less than 2% in earnings for the Standard & Poor's 500 stocks.

In the Chinese and Asian markets, however, traders see recent forecasts of lower growth as guarantees that the Chinese government and the People’s Bank will move more vigorously to stimulate China’s economy.

This scenario, which I wrote about at length in my posts earlier this month and Tuesday morning, has especially pushed up the shares of commodity- and export-oriented Chinese stocks. On the Hang Seng overnight winners included PetroChina (PTR) up 2.11% and China Petroleum and Chemical (SNP) up 3.80%.

It's certainly too early to say that Tuesday's action is a guarantee of the kind of rally in Chinese and Asian stocks that I wrote about earlier Tuesday.

But it is certainly the kind of move I'd expect if that rally were going to materialize in the fourth quarter.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did not own shares of any stock mentioned in this post as of the end of June. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 

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