June 2011 (Chinavestor) “That’s my story and I’m sticking to it” - when it comes to inflation in Asia and China in particular. We have noted in several Newsletters this year that inflation is playing a central theme in the performance of equity markets in China. There is no reason to alter our opinion going forward. While Chinese stocks are looking very good from a corporate point of view, fear of additional monetary tightening continue to keep them at bay. Actually, the Shanghai Composite Index (SHA:000001) is trading near the lows for the year, making it one of the worst performing major indices world wide for the year. Another telling statistic is that the index is off by 11.5% since the middle of April, in sharp contrast to the Dow Jones Industrial Average (INDEXDJX:.DJI) for the same period. As far as the Dow is concerned, despite a steady decline in May the index is still in the black for the year. The weakness for the DJIA in May is due to two factors. One, the index enjoyed a robust four month advance earlier this year, making it susceptible to a correction. And two, market participants are waiting for more clues that the recovery in the world largest economy is genuine. The good news is that corporate earnings have been relatively strong, giving U.S. stocks a sound footing.
Stocks mentioned in this report include Sinopec Shanghai Petrochemical (NYSE:SHI), Huaneng Power (NYSE:HNP) Silvercorp Metals (NYSE:SVM). Two key ETFs of the Newsletter are iShares FTSE/Xinhua 25 China Index (NYSE:FXI) and Morgan Stanley China A Share Fund (NYSE:CAF). NYSE listed Chinese IPOs lately from SouFun Holding (NYSE:SFUN), Youku.com (NYSE:YOKU), Qihoo 360 Technology (NYSE:QIHU) and RenRen Inc. (NYSE:RENN).