China’s Hidden Buy Signal

It was there, right along with all the headline numbers.  Did you see it?

My guess is, just like most investors, you glazed right over this critical indicator and were simply happy to see that Q2 Chinese GDP met expectations.   Their GDP reading did meet the expected growth rate of 7.6%.

But it’s this critical data point in China’s array of economic data released Friday that caught my eye… and it’s certainly a screaming buy signal!

While the 13.7% climb in retail sales for June beat expectations, that wasn’t it.  Sure that’s good to see, but retail sales won’t tell us how the government is planning to keep the Chinese economy moving.

This, my friends, can be seen in China’s Urban Fixed Asset Investments.

If you’re not sure what “fixed assets” means, it’s simply spending on construction, railways, machinery, and purchases of other hard assets.   It’s important because it signifies China plans to keep their economy growing by building out their urban infrastructure.

You can’t add more homes, cars, jobs, etc… without roads, electricity, and water supply… now can you?

The thing to note is we’re finally seeing China pick up its fixed asset spending.  In total, urban fixed asset investment rose 20.4% year-on-year to 15.07 trillion yuan ($2.38 trillion) in the first half of 2012. 

Now, Chinese government spending is down from a year ago as the reading back then was 25.6%.  But take a look at the chart below to see how we may have reached a bottom…

Source: National Bureau of Statistics of China

As you can see, spending by the government on urban expansion has picked up as of last month (20.1 up to 20.4).

What’s more, China is slated to double their railway infrastructure investment in the second half of 2012.   In the first half of the year, spending on railways was just 148.7 billion yuan ($23.5 billion).  But in the second half… that number will jump to nearly 300 billion ($47.4 billion) for a total 2012 spend of 448.3 billion yuan ($70.9 billion).

That, combined with the current uptick in overall spending, tells me one thing…

China is ramping up stimulus spending to keep their economy growing.  And as they add even more stimulus spending, we’re going to see other economic metrics improve, thereby removing the fear of a hard landing for the economy.

As the results of this spending start to show up, we’re going to see growth stocks rally.  This past Friday’s rally was just a small taste of what may lie ahead.

Bottom line…

More stimulus spending tends to push growth stocks higher.  And, buying some penny growth stocks right now could be your ticket to a fatter portfolio later in the year.

Editor’s Note:  Not sure how to find the best growth penny stocks?  Let Gordon Lewis, our penny stock guru, show you his secret to picking winning penny stocks…

Until next time,

Brian Walker

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Category: Chinese Penny Stocks

About the Author

Brian joins the Penny Stock Research team as a seasoned independent trader and financial analyst. Brian graduated with a B.S. from the University of North Florida and now resides in Scottsdale, Arizona. With a background in economics and statistics, he has a keen ability to uncover profitable and growth-focused companies. He has years of real life know-how in analyzing fundamental and technical data that gives him an edge drilling down on companies and financial results. With over 15 years trading experience, Brian has become an expert in the ever-changing equities markets. Today, he scours the markets hunting for penny stocks that offer low risk and high reward.

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