Skeptical of China’s ‘Forceful Action’

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Favorable comments from Chinese officials are helping stocks start today’s session solidly in the green, a day after Tuesday’s very strong gains. Today’s all-around positivity notwithstanding, I am skeptical that we now have the answer to the market’s China worries.

China’s finance ministry officials are reportedly in the process of rolling out ‘forceful action,’ according to The Wall Street Journal, to give the country’s flagging growth profile a boost. Details are sketchy as to what the new stimulus measures will entail. But the plan apparently is to spend more infrastructure projects, tax cuts for small firms and some sort of duty-free stores to incentivize construction activities.

The markets loved this announcement, with Japan’s Nikkei index jumping an eye-popping +7.7%, reversing all of Tuesday’s big losses and then some. Stocks were also up big in China and Europe and the positive sentiment is washing up on our shores as well.

I am puzzled by the markets’ positive reaction this Chinese announcement. These are not new ideas – we have seen these types of stimulus measures aplenty over the last couple of years. These measures can help slow the deceleration process, but it’s hard to imagine that they can jumpstart a full-fledged recovery.

[Hear: Dr. Ben Hunt: Markets Will Break Further If China Shows Signs of "Regime Change"]

The issue never was about China’s financial wherewithal or their ability to pour more cement in the ground. But the conventional wisdom of the last couple of years has been that they had literally run out of options to build more highways, bridges, airports and (ghost) cities. Given this, I am skeptical that today’s announcement is the panacea that market participants were looking for to answer their China questions.

In corporate news, Apple (AAPL) is the spotlight today as the iPhone maker unveils a new set of goodies that could help drive sales this coming holiday season. No major changes are expected to the core iPhone product, which brings in roughly two-thirds of the company’s revenues. But there is buzz around a major upgrade to the Apple TV product, with the box now accompanied with a Siri-enabled remote and a ‘store’ of its own.

The company has reportedly been finding it hard to strike deals with TV and film content producers that would have enabled it to come out with a streaming product along the lines of Netflix (NFLX) and Amazon (AMZN). Given last year’s strong launch of the iPhone 6, enthusiasm for today’s event remains muted. This, coupled with the China overhang, has been the major reason for the stock’s weak run lately.

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About Sheraz Mian

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