Why Asian Markets Will Be Strong Next Year

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There are certain companies that I follow, just to give me a feel for the health of the global economy and for what’s going on in the world.

One of those is the US company Caterpillar Inc. [NYSE:CAT]. That’s because the heavy machinery giant is one of the biggest names in construction machinery worldwide.

If there’s increasing demand for Caterpillar’s machinery, then that just gives you a bit of an indicator aside from the usual analyst’s opinions.

China is one of Caterpillar’s major clients, and the company has a number of key facilities in the country.

Caterpillar is talking up China’s economic outlook, and is expecting stable growth for the Chinese economy in the next two to three years.

After years of downturn, China’s excavator industry has been picking up since the second half of last year.

In the first eight months of 2017, more than 85,000 excavators were sold in the country.

Caterpillar attributes surging sales to strong demand from infrastructure, real estate projects, and improvement in the mining sector.

Along with the industrial turnaround, Caterpillar saw its China business grow, and expanded investment in the country.

The company is experiencing record sales in China, and is increasing investment in its Chinese plants to expand its capacity to meet demand.

I find it hard to get bearish on China, when I read reports like that from Caterpillar.

I suggest that these are the guys you should listen to for opinions on China. Not the academics, fund managers or the analysts who continually call a China collapse.

For the simple reason that a company like Caterpillar sees the sales coming in; they see the real story.

Also, the Chinese economic data just keeps coming in strong. Last month was no exception. 

China’s factories grew at fastest pace in over five years and that’s despite a government push to clean up polluting industries.

The China collapse story hasn’t gone to script, analysts and pundits have been wrong about China year after year.

A bullish outlook for China is also showing up in the charts.

The iShares FTSE China Large-Cap [ASX:IZZ] ETF, which tracks 50 of the largest and most liquid Chinese companies which trade on the Hong Kong Stock Exchange, is in a strong uptrend. It hasn’t made a lower low on the weekly chart in nearly two years.

The market has left any thoughts of a China collapse way behind.

Not just China…

Put aside stories of a Chinese collapse. The world’s second largest economy is powering along, if the charts are any guide.

And it’s not only China. All of Asia is booming presently. The charts clearly show it.

For example, the iShares S&P Asia 50 [ASX:IAA] ETF, which tracks the performance of the 50 leading companies listed in China, Hong Kong, Macau, Singapore, South Korea and Taiwan, is breaking into all-time highs.

Likewise the Vanguard FTSE Asia ex Japan Shares [ASX:VAE] ETF, which gives exposure to around 850 securities across Asia, including China, Korea, Taiwan, Hong Kong, India, Singapore, Malaysia, Indonesia, Philippines and Thailand, is also busting higher.

The weight of money is telling you Asia is really strong presently.

It’s very bullish for the entire region, of which we are a part.

Those who are making a case for an Australian recession at the moment, don’t know how to read a chart.

That’s not to say we won’t get the usual market panics along the way. There’s always something to spook the markets.

But while Asia is powering along like this, markets are most unlikely to collapse. Certainly not within the next six months or so.

And while all the focus is on western economies which have been plodding along, I’m expecting Asian markets to be really strong in the coming year.

A strong Asia will present opportunities on the ASX and keep our market bubbling.


Terence Duffy,
Editor, Money Morning Trader

About Terence Duffy

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance,…

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