Clues on the Chinese stock market via the Year of the Rat

While most of the Asian markets are taking a breather for the Chinese Lunar New Year, I’ve decided to see what is being said about the ups and downs that have been experience in recent months. As I’ve mentioned previously, there is no shortage of opinions on where Chinese stocks will go, and/or end the year. But there are a few things most everyone will agree with.

The biggest item is that the economy in China is growing and growing fast. Estimates of 10% growth for the year are only slightly off last years pace. China has grown enough that it is now making more investments outside the country than are coming in. Add to that the performances of several major companies (such as BHP Billiton Ltd, Bank of China Ltd, China Eastern, among others) and things look quite cheerful. If you don’t mind the bumps.

Interest rates followed the U.S. and were lowered after the Federal Reserve cut in January to catch up to the recessionary pressure and mortgage crisis. Still the Shanghai Composite Index has been off some 13% year-to-date. Several popular names have taken hits like China Life Insurance, New Oriental Education & Technology, and Shanda Interactive.

Not long ago I noted that Warren Buffet had recommended caution for investments in China. And shortly there after I mentioned a trader that favors China, and the potential of the Olympic Games this year. Now I’ve seen that Motley Fool had an article by Will Frankenhoff, that is looking for buying opportunitiues. That goes along with my cautionary call that recent winter storms and world conditions may be presenting a buying opportunity.

Considering both sides of this equation one mutual fund company has sought to give investors an opportunity to be involved with both sides. For those looking to be long yet unsure which individual Chinese stock to pick there is the UltraChina ProFund. And for those with a more bearish outlook there is the UltraShort China ProFund.

Which is best? Well let’s look at what people born under the year of the Rat are supposed to be like.

“Rat people are born under the sign of charm and aggressiveness. They are expressive and can be talkative sometimes…Rats are self-contained and keep problems to themselves….

The Rat is quick-witted. Most rats get more accomplished in 24 hours than the rest of us do in as many days. They are confident and usually have good instinct…

Unfortunately, as soon as the Rat earns money, he spends it.”

Going by this guide, which I do not profess is the perfect description, you might get this conclusion. February – and the whole year – is a matching of Yin and Yang , and as such the Chinese stock market has visited valleys and peaks. The full extent of exposure to the mortgage crisis will be unknown until April thus exhibiting the need for patience. Growth for the nation is expected to be very aggressive by anyone’s standard and is a mark of hard work. And more than a small amount of money made last year and this will be spent to rebuild and create new infrastructure that was damaged or needed from the ice storms that ravaged the southern parts of the nation thus providing for practicality, responsibility and long term planning.

All in all it sounds like a Rat. So perhaps one thought would be to have patience for the eventual outcomes of this year. The outlook is good for mergers like with China Eastern, and the test of banks investing in insurance companies. And the potential for growth to outpace expectations is high.

You may not believe in the Chinese calendar, but many do. And if that is the way they will be guiding their investments well it may be a hint. So it will be interesting to see how close my rough analysis based on the Rat will turn out to be.