CHINA SUPER CYCLE IS OVER

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The China super cycle is over. China will still grow at a heady pace, but I believe the torrid growth rates of 10% plus are a thing of the past.

In my article, Generate wealth in 2012 and beyond , I described that the last big-picture macro cycle was ending. The last cycle was characterized by high inflation in emerging markets and high gold  GLD -0.36%and silver  SLV -2.37%prices.

In October of last year, I described that a new cycle was starting. Among several characteristics of the new cycle were two related to emerging markets. First, there was the prediction that inflation in emerging markets would fall. This call has now proven to be spot on.

The second call was that growth in emerging markets would slow. GDP numbers from several emerging markets show that this call was also spot on. Now there is confirmation from China. Wen Jibao, Prime Minister of China, has just lowered GDP growth target to 7.5%. This is the first target that is less than 8% since 2004.

The new target for inflation is 4%. Inflation in China peaked at 6.5% last year. China has three big transitions ahead. The first is the transition from a primarily export-oriented economy to one with more domestic consumption. Second is a transition to a younger generation of leadership. There are no open and free elections in China, therefore, how the transition takes place becomes critical. China does not have a long history of smooth transitions in leadership.

Wen Jibao is stepping down. China is ruled by a nine-member politburo of the Communist Party. Seven members of the politburo, including President Hu Jintao, are scheduled to step down.

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Third, the big government stimulus money is about to run out. Most of that money has gone into infrastructure development. As the stimulus money disappears from the economy, infrastructure development will slow considerably…Read more at MarketWatch

Emerging markets are still the place to generate wealth.  ZYX Emerging Markets ETF Alerts provides short-term, medium-term, and long-term ratings on 15 emerging market ETFs.  Risk reward matrices are very popular features of this alert.

 

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