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Chinese stocks - bear market over?

Chinese stocks engaged in a furious run-up earlier this year but recently plunged more than 20%, prompting some observers to note that China is now in a bear market.

We are seeing signs of a resurgence.

In Thursday night's TrendBusters list, we saw 9 Chinese stocks and ETFs generate BUY signals. This means that they moved up above a previously downward sloping trend line and are now showing signs of an upside breakout.

Here's the list:

Symbol Name
CEA CHINA EASTERN AIRLINES
EWH ISHARES MSCI HONG KONG INDEX
FXI ISHARES FTSE/XINHUA CHINA
GCH GREATER CHINA FUND
GXC SPDR S&P CHINA ETF
HAO CLAYMORE EXCHANGE- TRADED FUND/ALPHASHARES CHINA SMALL CAP ETF
PGJ POWERSHARES GOLDEN DRAGON HALTER USX CHINA PORTFOLIO
XPP PROSHARES ULTRA FTSE/XINHUA CHINA 25
ZNH CHINA SOUTHERN AIRLINES COMPANY LIMITED

Is it justified?

Some numbers were just released. Last month, output at China's factories gained 12.3% from a year earlier. Retail sales climbed 15.4% in August from a year before. The government contends the country is on track for economic growth of 8% this year.

Much of this is the beneficial result of stimulus efforts by the Chinese government. Premier Wen Jiabao has been quoted in today's Wall Street Journal as saying that the government will continue stimulus efforts because, despite the better than expected growth numbers mentioned above, the recovery in China remains "unstable."

It can be argued that China, with it's top-down command structure and deep pockets, has seen the best effects from its stimulus efforts. Certainly, the U.S. has not been able to register the kind of growth China is showing despite pouring billions into banks, auto makers and other areas of the economy.

So it might make sense to assume that Chinese stocks got over-heated, plunged and, now that economic growth is truly visible, are heading back to somewhere around fair value. The list above is a good place to look for a few candidates for your watch list or your portfolio.

Note: Chinese symbol at the top of this post means "strength"

Disclosure: no positions

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