CHART OF THE DAY: China's Stock Market Is Due For A Big Rally

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Frank Holmes of U.S. Global Investors is bullish on the Chinese economy and he thinks Chinese stocks are headed up.

From Frank Holmes:

Over the past few years, Chinese stocks have lagged compared to their emerging market peers. However, the Periodic Table of Emerging Markets perfectly illustrates how last year’s loser can be this year’s winner. Historically, every emerging country has experienced wide price fluctuations from year to year. Over time, though, each country tends to revert to the mean.

In the visual below, we highlighted China’s performance pattern over the past 10 years. Chinese stocks landed in the top half four out of 10 years-2002, 2003, 2006 and 2007. In 2003, China climbed an astounding 163 per cent; in 2007, it was the top emerging market again, returning nearly 60 per cent.

Since then, the country has fallen to the bottom half of the chart. If you apply the principle of mean reversion, history appears to favour China landing in the top half during this Year of the Dragon.


Photo: US Global Investors

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