THE GLOBAL GROWTH STORY UNRAVELS
by Ghassan Abdallah, Ph.D.
January 15, 2008

In my last article “Resisting Short Temptations,” I wrote:

In China, the world’s fastest growing economy, the Central Bank is combating inflation with higher interest rates and other measures aimed at tightening credit. Furthermore all indications are that a major market top in China has already taken place---a variety of Chinese stocks climbing 200% in one day during the month of October was a sure sign of a major market blow off top.

While all eyes are focused on the U.S. markets and the looming recession, a stealth Bear market is taking place elsewhere. Above a two year chart of the heart of the emerging markets, Hong Kong’s HANG SENG Index. The index has lost 6000 points in the last three months, down from 32000 to 25800. A close below 25000 will hasten the move down to the 20000 level and will constitute a 30% retrenchment.

iShares FTSE/Xinhua China 25 index FXI (Three Year Chart).

The evidence strongly suggests that the emerging market phenomenon witnessed over the last few years is over. Above a three year chart of the iShares FTSE/Xinhua China 25 index ETF (FXI), which closely tracks the movement of the Hang Seng Index.

China Mobile CHL (Three Year Chart).

Above a 3 year chart of China Mobile (CHL). Referred to as cheap by the traders of CNBC’s Fast Money Program. Market cap of over 300 billion, revenues of 45 billion, and a PE of over 30 hardly qualifies as cheap. Some people never learn.

Above a two year chart of South Korea’s KOSPI Composite Index-- home to Asia’s largest semiconductor and flat-screen maker Samsung and Hyundai Motor Co. The chart is reflecting the unfolding global recession.

Above the iShares MSCI Emerging Markets Index (EEM). Declining global demand for cooper and steel products is Bearish for this ETF, which includes raw materials producing countries like Mexico and Brazil. 

Finally the NIKKEI not exactly an emerging market. The world’s second largest economy’s stock market is trading at a two year low and should serve as a reminder for those who advocate low interest rates as a means for growth. Interest rates have been hovering near zero in Japan for years. No country can devalue its currency as a means of creating prosperity. 

© 2008  Ghassan Abdallah, PhD
Editorial Archive

Contact Information
Ghassan Abdallah, Ph.D.
832-767-3807
Email