Here’s Why I’m Proudly Bullish About China’s Economy

It amazes how anyone can be bearish on China’s economy  when its has just grown FIVE-FOLD in the space of ten years.

That’s right. My name is Alex Cowie — and I’m bullish about China.

It’s not exactly the most popular view in this office, but it’s what I believe.

We’ve had a great few emails recently asking us what we’re playing at, like this one from Phil:

‘Did I miss something? I’m not sure whether you guys have short memories, but what happened to your big predictions of China going bad?’

Well, one of the good things about working here is that no one tells you what to believe. There is no ‘party line’ we have to tow. Most of the Editors are bearish on China.

But I’m pretty much the odd one out. I’ve been unashamedly bullish on China for years now.

In fact in the January Diggers & Drillers newsletter, I’m shouting my pro-China view from the rooftops.

Because thanks to China, I actually think that the big trade of 2013 is to buy the best of the Australian resource market’s beaten up  junior mining stocks…

Now I’m not saying this because China just announced the first increase in its annual economic growth rate for two years. If you missed it, on Friday the December quarter GDP jumped to 7.9%, from 7.4%.


China’s Economy Grows for the First Time in Two Years

China's Economic Growth Over The Years

Source: Trading Economics

Any kind of improvement in China’s growth statistics is good news for resource stocks of course. As the world’s biggest consumer of commodities, Chinese economic growth will generate a jump in commodity demand.

But a single jump in quarterly growth isn’t the reason I’m making a Tarzan-like battle-cry for copper, iron ore and coal.

It’s something else altogether — something political — that makes me believe that 2013 will be the most incredible turn around year for the beaten up mining juniors.

Now I can’t give too much away as that would be unfair to paying readers of Diggers & Drillers. But I’d like to share with you a snippet to give you an idea of what I think’s in store for the year:

…I want to go on record today as saying that CHINA IS DOING JUST FINE.

 The China bears like to overlook that the latest growth rate of 7.9% is above target (and never mind that 7.9% is still stellar growth by any standards).

And let’s remember that 7.9% growth today adds far more to China’s economy — and therefore requires more commodities — than 13% growth did when China was a third of the size.

 So I want to start my first letter of the year by telling you the China-bears are about to be forced to eat their words, as it drives the next leg up in resource stocks. This month’s copper stock tip won’t be the only one looking at a 260% gain.

…This [infrastructure spending] will require vast amounts of commodities. I reckon mining stocks are just about to be reminded of what it feels like to have China screaming for more of their product.

And the good news for you is that this comes right at a time when junior stocks in the industrial commodities of copper, iron ore and coal are dirt cheap.

To me this spells out the perfect recipe for what should be the big trade of 2013.

And they really are dirt cheap.

After selling off since early 2011, many good quality mining juniors in iron ore, coal and copper are now less than half the price they were two years ago.

This includes the ones with good, profitable projects, and strong growth prospects ahead.

The first Diggers & Drillers tip of the year is a copper stock, but there will soon be other tips in juniors involved with iron ore, coal, as well as the less well known minor ingredients of steel.

Starting with copper was a ‘no brainer’.

The reason was the price had done next to nothing for 12 months.

That may sound like fuzzy logic, but think about it. There was every reason for copper to collapse last year — the markets were about to crash, China’s economy was supposedly collapsing, and the financial markets were apparently about to implode — Yet Copper held firm all year.

No Worries for Dr Copper in 2013

No worries for Dr Copper in 2013

Source: Stockcharts

I’m expecting the Chinese economy to have a good year in 2013, and as the world’s biggest consumer of copper by far — at 43% of global consumption — the copper price could be in for an increase. And sure enough, China has just set an all-time record for copper imports.

Back in 2010 I made the same case, and the other guys here thought I was nuts. But you can see in the chart, copper rose by over 60% in twelve months.

Now I’m not expecting that to happen again, but a 10-20% rise is possible. The technical chart looks quite bullish to me, and the fundamentals look good too.

So copper was the first industrial metal to kick the year off with.

But as readers of Diggers & Drillers will find out over the next few months, coking coal and iron ore are in hot pursuit.

Dr Alex Cowie

Editor, Diggers & Drillers


Money Morning Australia