Happy New Year!

I’m not late by 2+ months. We’re in the middle of the Chinese Spring Festival, that celebration of good fortune, wealth, and happiness that runs from the end of the last month of their year to the middle of the first month. Because the Chinese calendar is based on both the moon and the sun, the timing of their New Year shifts around, kind of like Easter.

The celebration is thousands of years old, and is marked by family reunions, parades, firecrackers, and other festivities. Every year hundreds of millions of people travel to their ancestral homes for the festival, straining China’s transportation system. Naturally all this travel affects their economy: people can’t work when they’re travelling, and factories reduce output. Capital spending tails off prior to the New Year, and reaccelerates afterwards.

Because China has a $9 trillion economy—more than half the size of the US—this has an impact on all of us. But the date changes every year, so it’s hard to model. Even so, this impact doesn’t mean their economy is slowing. Put it this way: we don’t think that our economy is taking off just because gift-buying ramps up in December; we shouldn’t forecast gloom-and-doom because Chinese spending slows in early winter.

I suspect that this may be behind some of this year’s emerging market angst. Slower output and rising loans should be expected right now. Yes, there are important underlying issues, but when the New Year’s dragon dance is taking place, it’s hard to hear the trends with all the firecrackers going off.

Douglas R. Tengdin, CFA
Chief Investment Officer
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