Just feel free to put down any share/shares you feel will do well in 2015 and future years.

.

From Galvan Research at http://www.galvan.co.uk

Beware of the China meltdown: the UK Stocks to Avoid

The great fall of China
In July of this year, Chinese shares suffered their worst month in nearly 6 years.
At one point, around a third of the value of Chinese equities had been wiped out by a wave of heavy selling.

The media is dubbing it “The Great Fall of China”.

But that’s only half the story. The sell-off is really a by-product of a massive rally.
At the beginning of 2014, the Shanghai Stock Exchange (SSE Composite) stood at just
over 2,000 points. In just a year-and-a-half, it had rocketed to over 5,000 points.
A move like that in the Dow Jones or FTSE would be astonishing. But Chinese markets are a different beast.
Later this year, China will celebrate the 25th anniversary of the opening of its stock markets. In that relatively short space of time, the market has gained more than 100% on eight occasions. It’s a market prone to big swings, both up and down.
In the past it didn’t matter so much. China was not a major player in global markets. That’s not the case anymore.
The Chinese stock markets are now the world’s second largest after the US with the Shanghai and Shenzhen exchanges having a combined value in the trillions.

An army of new investors
It’s estimated there are now over 90 million stock-trading accounts in China, with around a third of these accounts opened in the last nine months. Around 12 million new accounts were opened in May of this year alone.
The Economist reports that retail investors produce more than 80% of trades in Chinese stocks,
with many relying on tips from friends and family. Even more alarming is that data from the China Household Finance Survey found about two-thirds of new equity investors haven’t even completed high school.
In short, there’s an army of new Chinese investors with little experience or financial
education. Ironically, 2015 is the Chinese Year of the Sheep.
What’s more, online peer-to-peer lending and smartphone apps have allowed investors to obtain loans to invest in stocks. Borrowed money is thought to be a big driver of the recent gains, which becomes a vicious cycle if stocks begin to fall because investors are forced to sell to cover loans.

A rigged market?
Despite growing in size, the Chinese markets still have ‘communist’ tendencies.
The government is by far the biggest investor, with controlling stakes in sectors such as defence, energy, telecommunications and finance. It means the government has a strong vested interest in keeping share prices high.
After the recent sell-off, the Chinese government went out of its way to revive the market.
The “national team”, which consists of government investment vehicles, state-owned brokerages and large insurance companies started buying shares directly in top 20 stocks and letting over a third of all Chinese stocks halt trading while the going was tough.
Not only that, short selling was banned, IPOs were banned and even large shareholders were banned from selling their stakes. And for good measure, the People’s Bank of China cut interest rates and eased reserve requirements and the China Securities Regulatory Commission relaxed collateral rules on margin loans.
The problem with such large scale intervention is that it makes the market feel rigged. Rather than restore confidence that usually leads to greater panic. It suggests the government doesn’t trust market forces to discover the right price for stocks. People don’t know what the ‘true level’ would be without all the intervention, so are scared to buy.
There is now a fear that once the government withdraws support, there will be the
next big leg down.

The economy is slowing down…and that matters
The fact is the Chinese stock market remains largely the concern of the Chinese. Foreign investors have little direct exposure. Capital Economics estimates that foreign investors account for just 1.5% of Chinese shares.
Regardless of what’s going on in the Chinese stock market, their real economy is
slowing down. And that matters for the rest of the world.
Global commodity prices across the board have been falling as the Chinese cut back on their consumption. And in the recent earnings season, car companies such as Audi, Ford and Peugeot slashed their growth forecasts for China and industrial giants Caterpillar, Siemens and Anheuser-Busch pointed to weaker Chinese sales.

The UK stocks to avoid
Investors need to be prepared for the potential fall-out from a slowdown in China. We’ve highlighted the UK stocks we see as most vulnerable.

BHP Billiton (BHP) & Rio Tinto (RIO) are obviously vulnerable to falling commodity prices. The belief is that China is steering its economy away from building and construction and into consumerism, which has led to less demand for commodities such as iron ore and copper.
It must be said, China is only part of the reason for falling commodity prices. The other major factor has been the strengthening US dollar as the market anticipates the Fed raising rates later this year (as commodities are priced in US dollars, a higher US dollar leads to lower commodity prices). It basically means the miners are facing two major headwinds.

Aberdeen Asset Management (ABN) is a FTSE 100 fund manager that specialises in emerging markets. Its customers are sensitive to news coming out of China, as it’s the world’s leading emerging market.
In July the company reported a 7% fall in its assets under management as investors pulled money out of Aberdeen’s funds due to increasing expectations of a rate hike in the US and volatility in the Chinese stock market.

While not as directly exposed to China as Aberdeen, Prudential (PRU), HSBC (HSBC) and Standard Chartered (STAN) are all Asian focused. Asia has become Prudential’s main source of growth and now accounts for almost half its business. HSBC and Standard Chartered have large loan books in Asia and should conditions deteriorate in China they could face big losses.

Another stock exposed to China is Burberry (BRBY), the British luxury goods brand. Only recently the company reported sales had been fuelled by growth in China but rivals in the luxury sector, such as Prada and Hugo Boss, are reporting a slowdown, which could soon spread to Burberry.

End