So much of the current market focus is on China, as almost any company that has China exposure has been hit, and in some cases hit hard in the last few months.
There's no doubt there's a tremendous amount of focus on China and whether or not the China economy is imploding right now. People often take their cues from stock market swings, and that's probably a big mistake when you look at China. For one thing, China's stock market is still up huge from where it was just a year ago, even as little as 300 days ago.
See, the Chinese stock market wildly bubbled up and had gone hockey stick for a two-year period into when it finally popped, 100 days or so ago. Looking back at a five-year chart is where you can really see the unsustainable, hockey-stick spike.
So is the big pullback from those stock market highs in China signaling that the Chinese economy has imploded? Not necessarily. After all, did the steady years-long bear market that you see from 2001-2014 in that five-year Shanghai Composite report mean that the China economy was in recession? Stocks can fade, go range-bound or even crash during economic growth cycles like China was going through during those years, just as they can also put on huge rallies and bubble up during economic recession cycles.
China's stock market is at the same level it was five years ago. But that doesn't erase the fact that there are already millions of wealthier Chinese citizens and that there are going to be millions more in the next few years too.
More to the point, does it signal that the trend of millions of Chinese citizens moving up into a form of middle-class and away from a subsistence level of living going to change? Will there be more smartphones sold in China this year than there were last year? What about five years from now?
We're talking about the global smart phone unit sales alone going from 1.5 billion or so this year to maybe seeing 1 billion smartphones sold in China alone -- just in one country -- in just another seven to 10 years or so. That would likely take global smartphone sales to 2.5 or 3 billion per year in another decade, too. Will China's economy have some fits and some pockets of pain along the way? Of course.
Meanwhile, as I noted the other day, the Chinese smart phone vendors are themselves starting to take big market share. Chinese technology products are finally starting to be taken seriously by even U.S.-based standards. Now certainly, like Caterpillar (CAT) here in the US, China's broader industrial economy struggles.
But perhaps the single most overlooked data point when trying to analyze where the China economy is right now and where it will be headed over the next few years is the fact that China's a huge net importer of oil. The crash in the price of oil specifically (and other commodities that China imports secondarily) is going to mean that billions of dollars will be available for the Chinese consumers, while the businesses that use energy and other commodities to build end products are going to be much more profitable than they would be otherwise.
China imports some 6 million barrels of oil every day, which means that the $50 discount on oil right now is equivalent to $300 million a day in savings that will be invested/spent in other parts of the Chinese economy, including having the effect of making their citizenry/consumers themselves feel wealthier.
Jim Cramer rightly talks about this in one of his posts today:
I say that because last night's Nike (NKE) call made everyone who has been second-guessing those saying anything good about China look like total dopes. Listen to what Trevor Edwards, president of the Nike Brand, had to say: "In greater China, revenue was up an amazing 30%."
Jim Cramer used to often ask "What if it all works out?". Brian Gallo likes to find the least expected outcome. You can probably combine those two concepts here in regards to the Chinese economy and consumer -- having it all work out in China is indeed the least expected outcome right now.