International Spotlight:China and Canada

China’s benchmark CSI index has gained 87% this year on the back of robust growth. The Asian giant’s economy grew at it’s fastest pace in 12 years in the second quarter, registering a GDP expansion of 11.9% from a year earlier. The bullish GDP data exceeded all forecasts among 23 analyst s on the street. It is a tough job on the street to forecast and accurately predict an economic beast that only comes around once every 100 years.

We believe China’s bullish underlying fundamentals will support further appreciation in the country’s equity market. The bears who are attempting to call a top and have concluded a ‘bubble’ will burst later this year are going up against unique and potent fundamentals. A bet against China is essentially a bet against global growth and a bet for a Black Swan event that would disrupt international trade and global financial markets. The excess international liquidity, strong demand for goods from China and tech firms coming into their own, we are moderately bullish on China with some valuation concerns.

Comparisons to the U.S. dot come bubble are severely flawed based on China’s fundamental story where there is a lot of bark with good bite to back it up This growth story is still in it’s infancy and has room to run.

Another attractive story with strong supporting fundamentals is Canada. We see the Loonie appreciating to parity with the U.S. dollar by the end of the year. A mix of China and Canada portfolio exposure that includes some Canadian dollar exposure should work well going into 2008.