Is the non-correlation trade is making a comeback?
If you're not familiar with it, for the past several years, analysts have decried the lock-step movements of global markets and how difficult that makes it to minimize risk. In a perfect portfolio, when market-A zigs, market-B zags.
Lately, wherever you turn, it's been almost all zag all the time, but that could be about to change traders say, with China taking the high road and the U.S. taking the low road. "China is slowing but doing better than anywhere else," says Todd Schoenberger, the Managing Director of LandColt Trading.
And the worse things get in the U.S. and Europe, the better - or at least less worse - they look in places like Shanghai where he says the economy is growing at 11%. "You have to start looking at some of those companies because they're starting to break out," says Schoenberger.
Even so, he says there's still "tremendous risk" and you have to have the appetite to take it. While Schoenberger clearly does have the necessary appetite, your hosts and many others do not. Mainly because we don't have faith in the numbers, and we know if your best customer gets sick, you're probably going to catch something too.
That said, Schoenberger bases his bullishness on things like the fact that the western half of China is still largely undeveloped. Meanwhile, existing infrastructure projects continue at a breakneck pace with 75% of the world's construction cranes deployed there. "Think of China as being where the U.S. was at beginning of the 20th century," he says.
While the Chinese construction and development boom is well known and arguably best played externally via materials and/or equipment stocks, what's really caught Schoenberger's eye is the internet. "The biggest bubble forming there is the internet," he says while pointing to triple-digit gains in segment leaders like Baidu (BIDU), Sina Corp. (SINA), and Sohu.com (SOHU).
He also likes China Life Insurance Co. (LFC) and thinks defense spending will continue to grow for years to come. But "growth is the key risk" he says while taking comfort in the near certain gains in the Chinese quality of life.
"Everything we take for granted in this country is fresh and new there. The Chinese aren't going to cut back on anything," says Schoenberger.
In a financial world full of risk, is China becoming the safest bet? Let us know what you think below.
(Disclosure: Schoenberger owns shares of Baidu (BIDU))
- Managing Director
- the high road