Investment Contrarians

Chinese Economy

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.

A Safe Way to Profit from China’s 700 IPOs to List in 2014

By for Investment Contrarians | Dec 5, 2013

China’s 700 IPOs to List in 2014I pushed the “go” button on China a long time ago now, and I’m certainly not set to press “stop” yet, as I continue to feel the country is one of the top growth areas for investors worldwide. My contentions are contrary to those of many other analysts in the stock market, but I’m holding onto my bullish views.

The Goldman Sachs Group, Inc. (NYSE/GS) is now telling the market that next year (2014) will not only be the “Year of the Horse” in the Chinese Zodiac, but it will also be a buying opportunity in Chinese stocks. Goldman Sachs is predicting that the Hong Kong-based Hang Seng China Enterprises Index, which is available for investment by foreign investors, will surge 19% in 2014. (Source: He, L., “Goldman Sachs sees 19% gain for Chinese stocks in Hong Kong during 2014,” MarketWatch, December 3, 2013.) The index tracks the performance of Hong Kong-listed Chinese companies.

Goldman Sachs also predicts that the Chinese economy will advance by 7.8% in 2014, while the Organization for Economic Co-operation and Development (OECD) is even more optimistic, estimating 8.2% growth next year. (Source: Organization for Economic Co-operation and Development web site, last accessed December 3, 2013.) The OECD’s optimism is based on the rise in domestic consumer spending in China, which remains a clear focus in the mandate of the Chinese government.

Of course, there will continue to be some hesitancy due to the numerous frauds found in Chinese reporting in U.S.-listed companies a few years back. However, many of these issues have already been, or are currently being, dealt with by the U.S. Securities Exchange … Read More

Why China’s Reforms Could Mean Big Business for U.S. Investors

By for Investment Contrarians | Nov 19, 2013

Big Business for U.S. InvestorsI’m calling it; that’s enough talk about Janet Yellen and the Federal Reserve’s likely strategy to continue printing money until the economic renewal picks up steam.

America has spent trillions to save its housing, financial, and auto sectors, and in the process, it has likely crippled the future generations with its massive build-up of national debt.

Yet at the same time, across the Pacific Ocean, China has seen decades of economic growth that has driven the country to surpass Germany and Japan to become the second-largest economy in the world, trailing only the United States. But unlike good old America, the Chinese have also managed to build up reserves of over $3.5 trillion.

And while there are still many in the United States who dish on China, I’m not in that camp. Having traveled to China, I can tell you the growth there has been staggering and it is reflected in the building of massive super cities that make New York City look small.

The money and wealth creation in China from the rural areas to the urban centers has driven the domestic consumption, and I expect this trend to continue.

And while the focus here was on the Federal Reserve and its suspect quantitative easing strategy, the Communist Party in China was meeting to discuss the future of the country.

At the core of the massive reforms in China will be major changes to its current policies as the country gets set for what will likely be another 20 years of growth superior to the United States and other Western countries. China doesn’t want its economic engine to stall…. Read More

Chinese Companies Looking Elsewhere

By for Investment Contrarians | Sep 7, 2012

Chinese Companies Looking ElsewhereChinese 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 (online retailer), (largest online clothing retailer in China), and … Read More

Chinese Firms Reporting Results Worse Than 2009

By for Investment Contrarians | Jul 24, 2012

Chinese Firms Reporting Results Worse Than 2009I’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

China’s Strategy: If You Can’t Beat Them, Buy Them

By for Investment Contrarians | Jul 20, 2012

China’s Strategy If You Can’t Beat Them, Buy ThemThere 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