After a three-year downturn, the Chinese stock market has roared back to life in the past month, at one point soaring 45% before a bout of profit-taking emerged. Looking ahead, a question arises. Will the rally have legs? Economic trends in China certainly bear watching (closely) and will go a long way toward supporting stock-market momentum. China is now an $18 trillion economy and represents just below 20% of the global economy. Thus, China is a critical contributor to overall global economic growth, even if it "only" grows 4%-5%. In fact, 4% growth in the Chinese economy today adds more to global output than the 10% growth achieved 10 years ago, when China was growing faster but was smaller. The latest rally in the Chinese stock market was kicked off by a series of events. The People's Bank of China cut interest rates, eased reserve requirements for banks, and reduced the cost of existing mortgages. It also unleashed schemes to provide more capital for institutional investors to buy stocks and for corporations to buy back their own shares. It did not rule out launching a sovereign wealth fund that would be devoted to purchasing local shares. And there may be more to come, including funds to debt-laden municipalities and direct payments to families with more than one child. What is unknown at this point is the scale of the investments. To ensure a more-pronounced period of recovery and growth, the spending plans should account for %3-4% of total GDP over the next two years, in our opinion. That's a price tag of $600-$700 billion.

American International Group is one of the largest insurance and financial services firms in the world and has a global footprint. It operates through a wide range of subsidiaries that provide property, casualty, and life insurance. The company recently spun off its life insurance operations (Corebridge), but still retains a majority stake.

Each month we take a close look at an aspect of sector investing. This month, we are examining growth and valuation. Investors hunting for stocks that reasonably balance long-term growth prospects and current value characteristics might look at companies in the Financial, Information Technology, and Healthcare sectors. These are among the industry groups that are selling for (price/earnings)/(growth+yield) ratios at or below the S&P 500's ratio of 2.2. To generate the PEGY ratios, we use the P/E ratio for each sector based on forward earnings for the numerator. For the denominator, we average the growth rates for the past five years along with two years of forward estimates, this in order to achieve a less-volatile earnings growth rate trend. We then add the current yield, to approximate total return. As an example, the current S&P 500 P/E ratio is 20, the current yield is 1.2%, and the historical growth rate is 8.0%. The formula is 20/(1.2+8.0) = 2.2. Sectors with favorable growth and valuation characteristics, in addition to the three listed above, include Energy, Materials, and Communication Services. Premium-valued sectors with low growth rates include Consumer Staples and Materials. Based on our analysis of growth rates and valuations, along with other factors, we have established our current over-weight sectors as Information Technology, Financial, Healthcare, and Communication Services. Our under-weight sectors are Materials and Consumer Staples. Our Market-Weight sectors include Energy Consumer Discretionary, Utilities, Real Estate, and Industrial.

AIG is a leading provider of insurance products in North America and internationally. The General Insurance segment offers traditional property and commercial insurance along with a number of specialty products. The Life & Retirement segment offers variable and fixed annuities and a family of mutual funds. The company is based in New York and has operations in more than 130 countries. The stock is part of the S&P 500 index.