This Asian Giant Is Struggling… But Here’s Where The “Smart Money” Is Going
Friday, January 23, 2009
by Martin Denholm, Managing Editor, Smart Profits Report
Dear Smart Profits Report Reader,
Pop quiz, folks. Name the country that owns these statistics…
- The Purchasing Managers Index (PMI) of manufacturing activity in this country tumbled by 4.3 points in November, compared with October. It was the fourth straight monthly decline.
- Industrial production (a component of manufacturing) growth slowed to 5.4% in November - the lowest since February 2002.
- Exports dropped by 2.2% in November - the first decline since 2001.
- The stock market plunged by 65% in 2008.
And figures released just this week show that the unemployment rate climbed to 4.2% as of December 31 - the first rise since 2003. In light of the above statistics, the government’s target jobless rate for 2009 is 4.6%, which would be the highest since 1980. This doesn’t even tell the full story, though, as the government’s figure doesn’t include unregistered citizens, including migrant workers.
The government aims to create nine million jobs this year. But the natives aren’t buying it. Consumer confidence has eroded to “America-esque” levels.
But despite all this, GDP growth is still expected to hit 6.8% during the final quarter of 2008. Remarkably, that’s the slowest rate in seven years. Countries currently scratching and clawing for whatever growth they can get at the moment are no doubt brimming with envy.
We’re talking about China, of course. And I suspect the slowdown is more shocking because the country has become accustomed to blistering economic growth that has lifted China above Britain and Germany as the world’s third-largest economy.
Fortunately, there’s something you can do about it…
China Plans To Flash The Cash
When it comes to money, you don’t often find the U.S. and China on the same page.
But when it comes to spending it and monetary policy, they’re like brothers in arms.
Like the U.S., China plans to spend its way out of its economic trouble.
In November, the government unveiled a four trillion yuan ($585 billion) stimulus package. And like the U.S., China wants to pump a lot of it into the country infrastructure, repairing and rebuilding roads, bridges, and railways. Such spending is particularly important in China, where infrastructure-related investment makes up one-quarter of fixed-asset investment, according to Jing Ulrich, managing director of China equities at JPMorgan in Hong Kong. And both countries hope this will create millions of new jobs.
If that doesn’t help over the longer-term, both the U.S. and China have loosened their monetary reins in recent months in hopes of providing a short-term jolt.
America is already familiar with “Helicopter” Ben Bernanke, with the Federal Reserve having sliced interest rates to zero. But the People’s Bank of China has also injected the financial system with more cash. It’s slashed its one-year benchmark lending rate for five straight months - to 5.31%.
Plus, the Chinese government has told banks to lend more money - a total of $588 billion this year.
How To Profit From The America-China Cash Pump
“The Americans are printing U.S. dollars. They are going to do whatever they can to revive their economy - even if it means destroying the dollar.”
So said Jim Rogers early this month. Speaking at the Asia Financial Forum in Hong Kong, Rogers, highly respected Asia expert and chairman of Rogers Holdings, stated that he’s “worried about the U.S. dollar” (and the U.S. Dollar Index has dropped around 10% since Thanksgiving).
As a result, he advises investors to sell government bonds and instead buy Chinese stocks, raw materials, power generation, and agriculture.
He’s not alone either. Speaking at the same forum, Bloomberg quotes fellow Asian investment heavyweight Stephen Roach, chairman of Morgan Stanley Asia, who advised investors to buy “anything to do with the Asian consumer, infrastructure, alternative energy and technology.”
While Rogers and Roach (which sounds a bit like a comedy double-act) made their comments early this week, we’ve touted the moneymaking potential of emerging markets for a long time.
In fact, we pocketed double-digit gains (and some readers even took triple-digit profits) by playing China to the downside last year through the iShares FTSE/Xinhua China 25 Index (NYSE: FXI).
China… India… South Korea… Taiwan
Today, while we’re acutely aware that emerging markets can be inherently risky, they also offer some pretty outstanding moneymaking opportunities if you know how to play them properly.
That’s exactly what we did back in our October 2008 Xcelerated Profits Report (XPR) issue when we recommended an exchange-traded fund run by another of the financial world’s foremost experts when it comes to Asian investments.
Out of fairness to our paying subscribers, I can’t reveal the name of the fund to you here, because we’re still very much in the position. In fact, it’s even better value now than when we bought it (and we did so in three stages, in order to mitigate our risk).
But you can get the name of this investment - plus all our others - by signing up as an XPR member. It’s easy. And in today’s cash-strapped climate, it’s cost-effective, too. Check it out here.
Have a good weekend.
Martin Denholm
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