China News Is Encouraging

This week has been chock-full of news coming out of the China. Some of this should have been expected given that the country's new leadership conducted its fourth plenum a few weeks ago to set the direction of the country over the next five years. However, the flow of deals and announcements is impressive. Earlier in the week, China and the U.S. also reached a preliminary agreement to eliminate tariffs on $1 trillion in trade. The country also seems open to loosen rules for foreign investment into new sectors of its economy. In addition, a new climate change agreement was just announced that should make the United Nations and global warming advocates happy. Finally, China also announced a Hong Kong mainland stock link, which will allow global retail investors access to Shanghai-listed stocks for the first time ever, and mainland investors will be able to trade Hong Kong-listed shares Clearly, this is one of the bigger news weeks from China in quite some time. Obviously, it will take time before these events impact the global economy and markets, but I have some quick thoughts on what we might see. The emission deal with China is sure to be contentious given the new political dynamic as the result of the recent mid-term elections. This shows that President Obama is willing to bypass Congress to follow his agenda and will work through government agencies (for example, the E.P.A.) instead to implement it. The new congressional leadership will not take kindly to what they view as a job-killing deal that the Chinese do not have to comply with until 2030. I also believe they will view this as a way to back door the cap and trade effort, which failed in 2010 -- despite the president's party controlling both houses of Congress. I also expect utilities and other industrial players to lobby strenuously against this new agreement. Combined with the recent direction the president has taken on net neutrality, the well is already starting to be poisoned for any new bipartisan efforts as the result of the mid-term elections. It could be a very contentious two years. Investors should keep this on their radar, as we have seen what can happen to the market when internal political tensions escalate. On a brighter note, the tariff agreement once implemented could be a nice tailwind for American technology firms and medical device makers among others. Major device makers such as St. Jude Medical (STJ) and Medtronic (MDT) should benefit from this as well as the repeal of the 2.3% medical device tax that was part of the Affordable Care Act. This effort was previously stymied by the current Senate leadership but I expect it will pass with bipartisan support when the new Senate convenes and gets back down to business. China's leadership also seems committed to move the ball forward on some economic reforms that could mark the end of a recent corruption purge, which tends to happen during these leadership transitions. This could be good for luxury goods makers, Scotch exporters and the city of Macau, all of which all have been negatively impacted due to recent efforts to discourage luxury. I have recently raised my stake in Las Vegas Sands (LVS) based on what is happening in China because it gets the majority of its revenues and earnings from its properties on the gambling enclave. The stock is down about $25 a share from highs earlier in the year. However, the company recently bumped its dividend payout 30%; it now will yield a robust 4.2% at current prices in 2015. As growth returns to Macau, I expect the stock to recover much of its losses over the last six months in 2015. On the whole, the news over the last week from China is encouraging. I am hopeful that it will help boost global growth over time -- which the world could certainly use right now.

China News Is Encouraging

Several big events this week will soon impact the global economy and markets.

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