China in the Year of the Rabbit

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Happy New Year 4708!

According to the Chinese calendar it’s the Year of the Rabbit. The leading Asian brokerage firm CLSA reports the Rabbit will “wrest the reins from the decidedly unpleasant and erratic Tiger that’s been tossing and turning the markets over the past 12 months.” We all could appreciate a respite from extreme volatility.

Chinese New Year is the longest and most important of the traditional Chinese holidays. It is celebrated around the world wherever there are significant Chinese populations. Customs vary widely but traditionally include an outpouring of gift giving, decorating, feasting, forgiveness and wishing for peace and happiness for everyone.

This is the fourth stage in the seasonally strong period for gold, which began back in August with Ramadan.

In the run-up to Chinese New Year, China’s gold imports are estimated to have more than doubled from a year ago, putting the country on track to overtake India as the world’s largest consumer of the precious metal. The growth in demand is being attributed, in part, to Chinese families giving each other gifts of gold instead of traditional red envelopes filled with cash.

Chinese markets are looking for a rebound in the Year of the Rabbit. In 2010, China’s A-shares market was the only Asian market with negative performance, as fears of inflation and an overheating economy cooled markets.

So far in 2011, China has outperformed the MSCI Emerging Markets Index. The Shanghai Composite Index has decreased only 0.28 percent versus the 1.54 percent drop for the MSCI Emerging Markets Index. By comparison, both Brazil (down 6.07 percent) and India (down 13.87 percent) have experienced declines this year, while Russia has jumped almost 9 percent.

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Frank Holmes is chief executive officer and chief investment officer of U.S. Global Investors Inc. The company is a registered investment adviser that manages approximately $4.8 billion in 13 no-load mutual funds and for other advisory clients. A Toronto native, he bought a controlling interest in U.S. Global Investors in 1989, after an accomplished career in Canada's capital markets. His specialized knowledge gives him expertise in resource-based industries and money management.

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