I had an amazing time at
the Beijing Olympics, and even though I didn't have tickets for the closing
ceremony, I did watch it on TV and was again blown away by the scale, precision,
and choreography of the Chinese.
The two-hour show, which
included one of the largest firework displays I've ever seen, a cast of
thousands of costumed performers, acrobats, stunt men on springs and
cheerleaders was a breathtaking spectacle that I will remember for many, many
years.
And I was even more
astonished by the superhuman feats of athletes like Michael Phelps' eight gold
medal performances and Usain Bolt's trio of world records.
You'd have a hard time
finding anybody who wasn't blown away by the Beijing Olympics and the job of the
Chinese organizers.
But as exciting as the
Olympics were, the question we investors should be asking ourselves is what
happens next to the Chinese economy and stock market.
The Quick Answer
Is Up, Up, Up
Here's why:
First
of all, history is on China's side: The stock markets of Olympic hosts increased
an average of 21% in the 12 months after the games. And China's rally was
started with a bang on August 20 when the Shanghai Composite Index surged 8% in
a single day! I bet there is a lot more to come.
The
Chinese stock market is jumping for a sound fundamental reason: Chinese
companies are generating real profits. In the first six months of 2008, profits
at the big state-owned corporations increased by 23%.
Valuations of Chinese stocks had gotten quite pricey, but the combination of
rising profits and lower stock prices now has the average Chinese stock priced
at a bargain-basement 15 times earnings. That is cheap, cheap, cheap for
companies that are growing like weeds on Miracle Gro.
On top of those
fundamental reasons, Chinese leaders are about to stomp on the gas pedal to get
China's economy moving.
The Best Is Yet To
Come
It didn't get a lot of
attention by the western media, but a July 25 meeting of the Chinese Politburo
announced a monumental policy change that is going to make investors smile from
ear to ear.
The big change is that the
Chinese are switching priorities.
