Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Another Geo-strategic Gain for the Chinese Manufacturing Dragon

Companies / China Stocks Aug 14, 2008 - 05:50 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleMartin Hutchinson writes: There's more bad news for those of you who are worrying about the United States' global geo-strategic position. According to a recent report, starting next year, Chinese manufacturing output will exceed that of the United States .

In concrete figures, of the world's $11.8 trillion of manufacturing value added output expected to be produced in 2009, China will account for 17%, while the United States will account for 16%.


For investors, even those based in the United States, the implication is clear: a substantial part of any investor's portfolio should be in China and any other countries where manufacturing is growing as a percentage of the world total.

China's manufacturing share has been accelerating rapidly since 2000, when it accounted for only 7% of global value added. Back then, the United States accounted for around 25% of the total. China's growth spurt in the last year has been caused not by any special acceleration in China's growth, nor is it the product of a sudden collapse in the U.S. manufacturing economy. The decline in the dollar – and the rise of the Chinese renminbi against the dollar – is what has inflated the value of Chinese manufactured goods.

For the United States, economic theory suggests there is no need to panic. Most services have at least some component of local supply, so they cannot be outsourced easily overseas (the exceptions being such services as computer software or accounting). Hence, it is natural that richer countries will tend to specialize more and more in the service sector, while poorer countries become more devoted to manufacturing products that can be easily shipped around the globe.

Nevertheless, there are a number of moderately disturbing implications to this news. To the extent that Chinese or other poor-country manufacturers acquire additional capabilities by manufacturing products for Western use, they may become more competitive in the international market against Western companies. Research and development, in particular, require a deep understanding of the production process to be successful – an understanding that is difficult to acquire from a distant country.

For investors, the exciting opportunities are likely to arise in China, and in other low-wage manufacturing countries that are opening up to Western markets. There are also opportunities in countries, such as Taiwan, that have the ability to marry their own technological capabilities with low wage manufacturing in China or elsewhere in Asia.

To take advantage of this trend, you might look at the following companies, all of which stand to benefit from the move of global manufacturing to China and other low-wage economies:

  • Acer Incorporated can be bought through London depositary receipts (LSE: ACID ), which are liquid and quoted in dollars. Acer became the world's third largest manufacturer of personal computers after buying Gateway last year. It manufactures in cheap-labor China, but has top quality Taiwanese research and design and good relations with Taiwan Semiconductor Mfg. Co. Ltd. (ADR: TSM ), the world's largest chip manufacturer. Acer yields 12% on a historic basis, but some of that relates to a special dividend on real estate profits; on the basis of its regular dividend its yield is about 7%. Its forward Price/Earnings ratio is 11.
  • Dr. Reddy's Laboratory Ltd. (ADR: RDY ) is India's premier manufacturer of generic pharmaceuticals, poised to benefit in the 2008 - 2012 period as many popular drugs lose their patent protection and are opened to international competition. It has moderate debt, about 50% of equity, and is also selling at a multiple of 17 times earnings to March 2009, with a dividend yield of only 0.8%. Again, the relatively high rating reflects the growth potential in Dr. Reddy's global business, which benefits from low cost and high quality in India.
  • Aluminum Corp. of China Ltd. (ADR: ACH ) is an integrated aluminum smelter focused on the Chinese market. It thus benefits from the rapid growth of Chinese manufacturing, as well as rising commodity prices generally. ACH is currently trading at a very reasonable P/E ratio of 7.6 times estimated 2008 earnings, with a dividend yield of 3.3%.

News and Related Story Links:

By Martin Hutchinson
Contributing Editor

Money Morning/The Money Map Report

©2008 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in