Forecasting Strong China Economy and Stock Markets
Stock-Markets / Chinese Stock Market Feb 11, 2009 - 11:40 AM GMT
Tony Sagami writes: I was watching CNBC last week and listened to expert after expert rub their crystal balls and predict the best places to invest your money: gold, bank stocks, Brazil, oil companies, large cap multi-nationals, drug stocks, Japan … you name it.
That tassel loafer, Armani suit crowd from Wall Street has one of the most consistent track records I've ever seen … AT BEING WRONG!
It's pretty easy to throw out enthusiastic predictions when you're investing other people's money. I'll never forget a conversation I had a few years ago with one of the top mutual fund managers in the country.
I asked him how much of his own money was invested in his fund.
And his few-too-many-beers answer was, “Hardly any! You think I'm stupid?”
One of the most valuable lessons I learned a long time ago was to pay scant attention to what the Wall Street experts have to say and instead focus on what the people running businesses have to say.
And last week, three of the largest companies in the world put their money where their mouths are and made …
One of the Loudest , Boldest , and Clearest Statements You'll Ever Hear About China!
In short, what they said was that China is still the place to invest your money.
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| When Lenovo paid $1.25 billion for IBM's personal computer division, it didn't foresee a U.S. recession that would cause business to drop like a rock. |
Leading by Example #1 —
Chinese computer giant
returns to domestic roots:
Lenovo announced a larger-than-expected $1.09 per share quarterly loss and the resignation of its CEO last week. You know what happened to its stock that day?
It soared by 10%!
Why? Lenovo also announced that it was so pessimistic about the U.S. market that it was going to concentrate its effort on Asia and especially in China, where it already gets 45% of its sales.
Lenovo's founder, Liu Chuanzhi, said:
“Lenovo has grown successfully on the international stage, but at this important time, we want to pay particular attention to our China business as it represents the foundation of our global business and growth strategy.”
When Lenovo bought IBM's personal computer division in 2004 for $1.25 billion, it envisioned itself taking over the U.S. computer market. What it didn't count on was the U.S. falling into such a severe recession that business would drop like a rock.
By the way, if Lenovo is de-emphasizing its U.S. business, you should be asking yourself what that means to companies like Hewlett Packard, Dell, Intel, AMD, and Microsoft.
Leading by Example #2 —
Freight carrier changes course:
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| Federal Express is moving its Asia hub to Guangzhou, one of southern China's most important manufacturing centers. |
Five hundred FedEx employees lined up on the runway of the Subic Bay International Airport and emotionally waved goodbye to a FedEx flight at 6:15 AM last Friday.
How come? Federal Express is closing down its Asia hub in the Subic Bay, Philippines and moving it to Guangzhou, one of southern China's most important manufacturing centers.
Why the move?
According to a FedEx spokesperson:
“The market in China is bigger than the entire market of Southeast Asia. China also gave FedEx rights to handle its domestic cargo, which is huge.”
The statement succinctly tells you why China is the most important part of any Asian investment strategy.
Leading by Example #3 —
Fast food conglomerate
ignores global slowdown:
Yum Brands, which operates KFC and Pizza Hut, opened 500 new restaurants in China last year and expects to open roughly the same amount this year.
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| Yum Brands plans to open 500 new restaurants in China this year. |
“We are on the ground floor of a huge, long-term growth opportunity in China,” Chief Executive David Novak said, later calling the country “the best restaurant opportunity in the world, bar none.”
“Ground floor?” “Huge opportunity?” “Bar none?” Those are some pretty bold and optimistic predictions.
And I absolutely agree with Lenovo, Federal Express, and Yum Brands, regarding China's merits as the best growth market in the world.
However, I don't believe Chinese stocks have yet bottomed. In my opinion, it's a little too early to jump back in with both feet.
I am looking for Chinese stocks to put in a MAJOR bottom sometime in the next few months and that will be one of the greatest buying opportunities you will see for years.
Maybe decades!
There are a lot of ways to invest in China. But perhaps the easiest are:
Exchange Traded Funds That Focus on Chinese Stocks …
Here are three ETFs that you might want to consider:
iShares FTSE/Xinhua China 25 Index(FXI) : Seeks to track the performance of the FTSE/Xinhua China 25 index. This index consists of 25 companies that represent the largest 25 Chinese companies listed on the Hong Kong Stock Exchange.
PowerShares Golden Dragon Halter USX China(PGJ) : Seeks results that correspond to the returns of the Halter USX China index. This index consists of 103 Chinese companies whose common stock is publicly traded in the United States. The index uses a formula that prevents the largest market-cap companies from becoming too large a component of the index.
SPDR S&P China(GXC) : Seeks to replicate the total return performance of the S&P/Citigroup BMI China index. This index consists of the largest 342 companies that are publicly traded and domiciled in China.
As always, timing is everything. My advice: Do your homework and wait for the right time to buy. And that will probably be when the news is the ugliest. I'll let you know. Just stay tuned to this column and my blog .
Best wishes,
Tony
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