Bulls on the Prowl in China and Greece

10/21/2010 3:12 pm EST

Focus: GLOBAL

Igor Greenwald

Chief Investment Strategist, MLP Profits

France is hobbled by an occasionally violent national strike against a two-year hike in the retirement age. Brazil fires desperate warning shots at a besieging mob of dollar-laden, yield-hungry foreigners.

Yet global financial markets were most disturbed this week by a quarter-point Chinese rate hike. The world feverishly pondered the surprise move’s implications for China’s many trading partners and import commodities. Investors from New York to Tokyo took fright. The most important growth engine on earth is monitored minutely for the faintest of murmurs that might precede a slowdown.

This probably wasn’t it, though it’s unclear to what extent the rate hike will crimp lending. As for depositors, their modestly enhanced rate of return still trails nominal inflation, never mind the spiraling asset prices. And just to let foreigners know the higher rate was not for them, the yuan was permitted a rare drop against the dollar.

In any case, the temptation to take profits ahead of the expected trillion dollars or so of asset purchases by the Federal Reserve proved short-lived. The Shanghai Composite traded two points higher the next day, even as developers’ stocks saw red. The index is up 11% in as many days since trading resumed following China’s week-long autumn holiday. Investors hoping to catch up to the huge moves in other emerging markets have begun to pile on.

It may well turn out, as Prieur du Plessis trip up the bulls before the yearend. But Gregory Weldon is even more surely right when he notes that Beijing has the financial wherewithal to maintain a robust rate of economic growth.

One of the Chinese satellite markets Weldon likes most is performing accordingly. In Hong Kong, where so many of the newly minted Chinese millionaires love to shop, the Hang Seng index is up 15% since the end of August and 5% so far in October. Taiwan stocks also rallied strongly in September, but have since pulled back.

According to MSCI Barra, China has been among the world’s strongest emerging markets so far this month, topped only by Peru and Turkey in dollar returns. In the developed-markets bracket, underdog Greece has outperformed Hong Kong, Singapore, and Australia. Profligate Portugal, Italy, and Spain have also done well, alongside parsimonious Austria and Germany. Perhaps austerity is going down well. Or maybe the anticipated money printing elsewhere is lifting even leaky European boats.

It’s certainly doing wonders for metals prices, including the gold and copper mined by a junior Canadian producer favored by Ryan Irvine. The stock popped 11% Wednesday after the company announced progress on its Spanish prospect.

The UK lender recommended by Peter Shearlock labors in the less fashionable field of supplying financing to residential landlords. But with its financing secure and so many Britons renting after losing their homes, the company’s prospects seem promising.

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