China's So-Called Soft Landing Gives Passengers Motion-Sickness (KORS) (TIF) (COH) (TRLG) (CMI) (CAT) (FXI)

July 12, 2012 9:42 AM EDT
While many will be keeping a close eye on key earnings releases this week, including Friday's release and conference call by JPMorgan (NYSE: JPM), the most important data point could turn out to be the release of China's GDP on Friday.

Analysts are calling for year-over-year growth in China to be 7.7 percent, and second quarter GDP is expected to be 1.6 percent. Both of these figures are expected to be lower than previous figures. In the first quarter, GDP growth in China was 8.1 percent, so there is clearly slowing in the country if the numbers prove correct. Because of a slowdown in Europe, there is a real risk that the numbers in China will come in worse than expected. If the numbers come in above expectations, many are likely to dismiss the numbers as rigged, so it may turn out to be lose-lose for markets on Friday – either China GDP will show slowing, or they are lying about growth and the economy is slowing anyway.

Attitudes like this make investing in China a risky endeavor, but that is to be expected. Lately, U.S. equity investors have also had their stomachs churned by China data. Earlier this week, Cummins Chief Executive (NYSE: CMI) Tom Linebarger made this statement - "Order trends in the U.S. for trucks and power generation equipment have softened and demand in Brazil, China and India is not improving as we had previously expected."

It may not jump off the page, but the word "China" framed in a negative light sent investors into a panic. Shares of Cummins are now down 12.5 percent. Shares of Caterpillar (NYSE: CAT) traded lower in sympathy with Cummins.

The jitters are is not isolated to industrial stocks. Case in point, Burberry Group. Burberry reported a decline in first-quarter sales growth tied to its performance in China. As a result, shares in luxury brands Michael Kors (NYSE: KORS), Tiffany & Co. (NYSE: TIF), Ralph Lauren (NYSE: RL), Coach (NYSE: COH) and True Religion (Nasdaq: TRLG) all traded lower on Wednesday.

Many economist and analyst are saying China's soft landing is still intact. If so, one has to wonder exactly what the true interpretation of soft landing is. Does it mean disgruntled workers and investors in China are going to show enough restraint to not to burn the place to the ground, or does it mean China is still a place worth investing in with a medium-term time horizon.

In either case, Friday could be a key day for those involved. Apparently, that now includes pretty much everyone in the U.S. as well as China. I suppose this is another one of those side effects from being in a global economy.

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