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Investing Specialists

Overseas Markets Might Add Spark to U.S. Economy

Strength in China and a weaker dollar could help reboot the U.S. manufacturing sector.

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Over the past several weeks I have written about the U.S. consumer being a bit weaker than I had hoped, but I've noted that U.S. export opportunities were helping to offset some of that weakness. This trend looks set to continue as a stronger-than-expected Chinese economy and weaker dollar bode well for export opportunities for the U.S.

Generally, I have focused on the U.S. economy, but I think it's important to mention some international activity given that S&P now believes almost 50% of all revenues from S&P 500 constituents come from non-U.S. sources. Interestingly, both the Chinese markets and the U.S. markets were weaker at the end of August, as fears grew that China would pull back on some of its stimulus efforts. The Shanghai Composite was down over 20%, as some began to worry that China was going to be restricting bank loans going forward. U.S. stocks were down far less, but the China shock did put a temporary damper on the U.S. market.

This week China announced that bank loans were actually up 15% from July to August, and stocks rallied. Just as importantly, China's premier announced on Thursday that he felt the Chinese economy was still in a delicate position and that the government wasn't going to remove any stimulus just yet. Most other Chinese statistics announced this week were positive, including industrial production and retail sales all showing healthy growth. Exports, however, remained quite weak. The beneficiaries of a stronger Chinese economy are the U.S. capital goods manufacturers that help build out Chinese infrastructure, electronics companies that ship consumer electronics and computers, and to a lesser degree U.S. agriculture.

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.