China may loosen monetary policy and initiate stimulus in the near-term, leading to a rebound in the second half of the year. That’s the bullish side.
While we may see some stimulus measures implemented, the reality is that officials don’t have much wiggle room, especially when you have structural inflation.
As I said here, while stimulus measures will be implemented, their scope will be a fraction of what the China bulls expect.
On a slightly different note, I thought this was interesting as it confirms my view of a manufacturing renaissance in the U.S. (and worldwide according to the article) over the longer-term as China transforms from a manufacturing to consumer-based economy.
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The future of the global economy lies in China. The country is in the slow process of preparing for a period of sustainable expansion. If we were faced with a negative market environment in the coming quarters, I’m sure one could find diamonds and diamonds in the rough in regards to US manufacturing and transportation companies. Watch out for protectionism though! I believe that China’s stock market has bottomed and it is currently in the retesting phase.
Longer-term though, (U.S. manufacturing) company cash levels are very high, and emerging markets may provide the secular growth that is needed for the (manufacturing) sector to stage a renaissance in the years ahead. While I don’t believe this scenario is knocking at our door, it’s progressively getting closer.
—-(RCS Investments Macro Outlook Mid-2011 — June 16, 2011)