China soft landing? Own these names.

Goldman Sach’s issued a report in late October saying, Stop Freaking Out, China Will Have a Soft Landing. They gave several reasons  to support their thesis; 1.) Inflation is easing. 2.) Government looks to be loosening monetary policy 3.) More room for debt 4.) And Chinese companies are still doing well. Since inflation is slowing, and that means the government will have room to lower interest rates and allow more lending. Goldman sites that the biggest drag on China has been fiscal tightening because of inflation fears.
OK, so Goldman thinks we have a soft landing coming in China, what should you be looking to add to your portfolio? Below we listed our four favorite basic materials name and one industrial that has a high correlation to the material sector. From the first chart below you can see that basic materials have significantly out-performed the S&P over the last 5 years. Obviously, past performance is not a good indication for future performance. However, Basic Materials has been the second worst performing sector this year and could be a good mean reversion trade for a soft landing in China.
This biggest risk to this Global Investment is the Sovereign debt risk in EU and world wide contagion.  See our last article on kicking the can down the road.
For our Free S&P 500 weekly call visit www.thechartlab.com.  Additionally, everyone will be eligible for two months free for our automated charting you see below when that goes live.

http://www.forbes.com/sites/thechartlab/2011/11/05/china-soft-landing-own-these-names/