The two most profound changes in the world for our generation have been the advent of the Internet and the explosive growth of the Chinese economy. Today, China’s GDP is equal to about one-half that of the U.S. Only 15 years ago, Chinese’s GDP was only one-tenth that of the U.S. In the fast growing global economy, China is emerging as a major player. The country of over one-billion people has been growing at the accelerated rate of 9% to 10% per annum for almost 10 years now. In Profit Confidential, we regularly comment on the Chinese economy, where we believe it’s headed and how an average investor in North American can partake and even profit on the unprecedented transfer of economic power from the U.S. to China.
Chinese stocks are leaving the U.S. equities markets as fast as they arrived. It has been a relatively quiet year for new Chinese stocks, following the debut of 60 Chinese stocks on U.S. equities markets from 2008 to 2011. In 2012, there has been one Chinese listing on U.S. equities markets, along with the delisting of several Chinese stocks that have been privatized. Since August 2011, 23 Chinese stocks have delisted from U.S. equities markets, according to Money Week magazine.
Some of the companies were delisted by the exchanges due to fraud, while others decided to pack up and obtain listing in Hong Kong and elsewhere. Others were taken private due to a lack of buying and overall distrust in the U.S. equities markets.
We all know about the trail of fraud initiated by numerous Chinese companies that emerged on U.S. equities markets via the speculative reverse merger process.
The pipeline of new Chinese stocks has essentially dried up in the North American equities markets, as Chinese companies are currently subject to intense scrutiny and detail reporting. I like the move to cleaning up the mess from fraudulent companies, albeit, many sound Chinese stocks have suffered in the process due to the general distrust in the market.
The reality is that I do not sense a return to recent years. Speculation of several big Chinese e-commerce initial public offerings (IPOs) looking to list in the U.S. equities markets this year have not come to fruition. Three Chinese Internet plays that were looking at listing in the U.S. were 360buy.com (online retailer), Vancl.com (largest online clothing retailer in China), and Xiu.com … Read More
I’ve been warning about the slowdown taking place within the Chinese economy. Moreover, official statistics reported by China may not be reflecting the scope of the slowdown that is taking place within the Chinese economy. However, there are many signs indicating that the country’s slowdown is actually worsening. What are these signs and what do they mean?
First of all, Chinese companies’ results were worse in the first six months of 2012 than they were in the first six months of 2009, when the financial crisis reached its height.
The Premier of China, realizing the scope of the problem, is considering tax cuts to help alleviate the crunch that Chinese companies are experiencing with this slowdown in the Chinese economy.
SANY Group is the biggest maker of concrete pumps in the world and the largest maker of construction machinery in the Chinese economy. This company reported weaker results and lowered its forecast for the remainder of 2012. The company was hoping to raise $2.0 billion in cash by issuing shares in the market, but had to pull the offering because demand was simply not there. Investors are worried that the slowdown in the Chinese economy could manifest itself into a hard landing, and so are adopting a wait-and-see-attitude.
China’s airlines, including Air China and China Eastern Airlines, are reporting a 50% drop in profits due to the declining demand within the Chinese economy. These are certainly not results reflective of a strong Chinese economy, and there are other measures that are indicating that things are getting worse, not better.
China’s central bank publishes a sentiment survey from companies to get … Read More
There is little doubt that the Chinese economy will be one of the major economies of this century. There is no question either that China’s growth will go through difficult periods. Right now, the Chinese economy is experiencing a slowdown and a property bubble that could cause severe economic repercussions to China’s growth story.
One knock against the Chinese economy is that it is too centralized. This culture of strict rules and discipline stifles creativity. It is creativity and the “animal spirits” of capitalism that have been the staple of the U.S.’s economic success story. Such brash attitudes will be difficult to nourish in a “command economy” like the Chinese economy. This is an economy that is strictly controlled by the government, rather than a free market like here in the U.S.
Certainly, China’s growth will have to be based on the country’s ability to innovate and create products and services that the world wants. The leaders in China understand this dynamic and have decided to take a different approach to improve the Chinese economy.
One thing China has that many other economies do not is a good chunk of reserves—money or capital—that Chinese companies can access to buy technology and expertise from around the world. That is exactly what the leaders of the Chinese economy are encouraging their companies to do.
The Financial Times reports that from 2010 to 2011, China tripled its investment in Europe to $10.0 billion, with that number expected to skyrocket by the end of the decade to over $250 billion. In the first quarter of 2012, China made $1.7 billion in deals in Europe, … Read More
The U.S. equities market has staged a remarkably resilient performance this year in spite of worldwide economic troubles. With the corporate earnings season about to begin, I’m expecting that many firms will issue conservative and cautious guidance, which might weigh down the equities market. Already we have seen several companies issue corporate earnings guidance that has been less than what the market expected.
An example would be Nike, Inc. (NYSE/NKE), which, during its corporate earnings call, issued a statement indicating that it sees further uncertainty in the world economy, raising specific issues in Europe and China among other emerging markets. Nike CEO Mark Parker specifically stated that the company expects these areas to grow much more slowly than had been seen over the past several years.
Last week saw the release of the Institute for Supply Management (ISM) survey. The results were extremely weak to say the least. The ISM Purchasing Managers Index (PMI) declined to 49.7 for June. A reading below 50 indicates a contraction in the economy. The ISM Prices Index was another negative component, reported at 37, which marks a decline of 24 points over the last two months. Combining the prices components as well as the PMI index itself will weigh on the equities market, as investors fear this will translate into weaker corporate earnings.
Chart courtesy of www.StockCharts.com.
I think these signs indicate that we might see more negative sentiment from corporate earnings releases weighing down the equities market over the next few weeks. There were earlier thoughts that additional quantitative easing might help the equities market, but it seems the Federal Reserve continues to … Read More
A month ago, the People’s Bank of China cut interest rates for the first time since 2008. In an obvious response to the slowing Chinese economy, the People’s Bank of China took what it felt was a necessary step to stem the tide of slow growth.
It looks like the People’s Bank of China is more concerned about growth than many people thought, because, just last week, it lowered interest rates for a second time. Clearly the manufacturing data out of China have shown a steady decline for almost a year. The consensus, even among those in the People’s Bank of China, is that the Chinese economy is experiencing a slowdown due to the recession in Europe and the faltering U.S. economy.
The question many investors are asking in relation to the Chinese economy is: will it experience a hard landing?
The world’s biggest maker of concrete pumps in the world and the largest maker of construction machinery in China is Sany Group. Sany Group has roughly 51,000 employees and for the last 10 years Sany has been increasing its payroll within the Chinese economy.
Well, for the first time in a decade, there are reports that Sany Group is laying off workers in the Chinese economy (source: Financial Times, July 4, 2012). The company denies it. However, to put perspective on this possible scenario, Sany didn’t even lay off workers when the financial crisis hit in 2008.
Analysts are well aware that the People’s Bank of China is notorious in carefully managing economic data. In all fairness, most central banks around the world can be accused of the same … Read More