Bulls On China And Buying More After A 10-15% Correction

In our view, China can continue to rise for some time due to a bullish Chinese government attitude toward economic expansion. Clearly, the leaders of China want to ramp up the GDP growth rate. China’s growth has slowed from very high levels to moderately high levels due to the transition from a manufacturing-based economy to more balanced economy where the consumer plays a larger role. We estimate that Chinese GDP is growing at least 6 percent per annum, which is very high when compared to all other economies.

Beijing has stepped up interest-rate easing in recent weeks, and we expect more cuts in rates and reserve requirements by year-end 2015. This will be in addition to other actions designed to lower the cost of borrowing and to make borrowing more available.

As most know, China has been clamping down on real-estate speculation for several years, making real estate a poor place to invest.

Simultaneously, China has been attacking and arresting corrupt officials at all levels, including the higher levels of the Communist Party. The combination of these circumstances has attracted money from real estate into stocks.

The public is growing as a stock market force. Public investors have moved from an historical average of 80 percent of market volume to about 90 percent of market volume. The average Chinese stock market participant can buy on margin within reason, and has a short term orientation -- so they shift from one stock to another as rumors circulate.

We own Chinese stocks for entirely different reasons:

1. Reasonable valuations based upon historical price-to-earnings, price-to-book value, and price-to-cash-flow ratios compared to historical Chinese data, as well as to other global markets.

2. Rapid growth rate of earnings versus other parts of the world.

3. An attractive dividend yield estimated to average 2.9 percent -- far above U.S. and world bond yields.

4. An improvement in market psychology as the central government is moving to improve the behavior of government officials at national, provincial, and local levels, and at the same time to rein in real estate. This is applauded by the average Chinese citizen.

5. That leaves stocks as one of the few areas of investment for the average Chinese person. (Gold bullion and coins can be purchased by individuals from banks.)

6. Use corrections to buy.

We Are Bulls on India

India, a long-time favorite of ours, has been through a 7-month correction and is within 3 percent of a breakout from an important technical formation. If India breaks out, technicians will jump in and move the market much higher.

Fundamentally, we have repeatedly recounted the positives in these pages. We are optimistic that India will experience a move away from paternalistic socialism, and will open to more free-market opportunity. Infrastructure problems and corruption will gradually diminish, and investors from around the world will discover that something good is happening in India.

The government has already lowered interest rates twice in 2015. We expect further rate decreases and lower inflation to create good news for Indian stocks.

We Are Bulls on Japan

Prime Minister Abe and his team will do whatever is necessary to bring Japan out of its deflationary mindset.

We believe the following will occur:

1. There will be another intensification of QE in Japan.

2. A continuing fall in the Yen will allow Japanese companies to earn more export income, and the resulting higher earnings will cause Japanese stocks to continue their move upward.

3. More and more Japanese pension funds are being encouraged to buy stocks by the government.

4. Pessimists on Japan argue that Japan will never allow immigration to solve their population growth problem. We believe that the Japanese will allow immigration perhaps on a temporary basis, and perhaps on a permanent basis, before they allow themselves to sink into a negative growth due to a declining population.

We Are Bulls on Europe

Europe has two great benefits at the current juncture.

1. A declining currency which will support and incentivize exports. The Euro has fallen from 1.385 to 1.082 to the US Dollar in the past 12 months. This is a decline of 21.8 percent. Such a decline makes European products much less expensive.

2. The current QE program in Europe, which should have a similar effect to the QE in the U.S., UK, Japan, and elsewhere. In these cases, bond yields were lowered, making stocks the only realistic available instrument to create income for institutions and individuals that require income.

The U.S.

While we see some opportunity in the U.S., we do not remain bullish on all sectors of the U.S. market. Some sectors have become overvalued, and we would like to see a correction before expanding our commitment there. We favor the industries which have been out of favor and can move back to their traditional growth rates. These include homebuilding, specialty oil and oil transportation, specialty retail, and regional banking.

Commodities

Food commodities remain weather-dependent and we would wait to buy. Industrial metals look like they are struggling to build a base and begin to recover.

Gold

Gold continues in a trading range and does not seem to be able to break out of it decisively -- either higher or lower.