BALTIMORE, MD: From Tokyo to Incheon (S. Korea) to Shanghai and Hong Kong, I’ve just seen Asia‘s most famous port cities. Baltimore has a fine maritime tradition as well, but the view from my crow’s nest tells me the American economic ship is headed for rougher waters. Is your portfolio seaworthy?
Just today (Monday), Japan’s economy got some wind in its sails from China, whose 11% yearly GDP growth has blown plenty of momentum into regional markets. China Investment Corporation, launched this year by Beijing to disburse some $200 billion of the country’s $1.4 trillion in foreign currency reserves, is reportedly planning major investments in Japan.
The Nikkei 225 jumped 1.7% on a combination of that news and optimism from exporters that the U.S. holiday season will bolster their revenue. But my bets are on Japanese domestic-oriented stocks, as they are the prime play on new Chinese-driven economic growth and a surging yen.
Why would you anchor yourself to overseas stocks that do all their business in the dollar? I recommended a new Japanese play exclusively to my Orbus Investor subscribers the very day I visited their offices high on the Tokyo skyline. It’s a Japanese industrial dynamo in a major phase of change, and it’s already seen double-digit percentage gains since my recent "buy" call.
On the street level, Chinese retail investors are eager to participate in their home country’s boom, chipping away at 40% household savings rates with stock purchases and record demand for luxury items, from cars to handbags.
In my only inland stint this November, I visited the ancient Silk Road hub of Xi’an in central China. As the largest city in China’s coal-producing heartland, its air bears a persistent aroma of truck exhaust. It’s not pleasant, but it’s a key element in China’s industrial revolution.
One day, while walking along the southern interior of Xi’an’s ancient city walls, with endless purveyors of traditional art and even more ice cream and toy vendors shouting in Mandarin to attract my business, I noticed this woman reading the paper.
My spoken Mandarin is good enough to get by, but as many waiguoren will tell you, the phrase "It’s all Greek to me" doesn’t even compare to the sense of illiteracy you can get from staring at a Chinese sentence.
Nevertheless, I was able to make out one thing and one thing only on auntie’s newspaper:
CHINA SECURITIES JOURNAL
There in the subtitle of her reading material, and in the polluted air she was breathing in the town she has called home since the days of Chairman Mao, is today’s China in a nutshell.
According to reports, over 100,000 trading accounts have been opened every day in China this year. Some call the result of all this exuberance a bubble, but you must also consider that over two thirds of all Chinese A-shares (those which are traded in Shanghai, as opposed to Hong Kong’s H-shares) are owned by the government and affiliated entities.
For better or worse, this is a market under control. The People’s Bank of China, the central bank, keeps raising bank reserve requirements and has vociferously discouraged new loans in order to combat inflation. International pressure continues for China to allow the yuan, or renminbi ("people’s currency") to float past the 10% it has gained against the dollar since the first time I traveled there in 2005. My local business contacts expect the yuan to rise to the level of six per dollar within the next five years, but it won’t be a sudden jump.
It may seem like they’ve caught lightning in a bottle since 2005, but in truth the Communist Party of China (CPC) has been on this course since Deng Xiaoping instituted major market reforms in China in 1979.
China Market Bubble?
And the bubble theory often brings out another fallacy–that since China’s share prices have risen so far, so fast (nearly 500% since two years ago, compared to about 18% for the Dow over the same period), the momentum must be nearing an end. But that ignores the fact that although China’s economy is now number two in the world, in per-capita terms the average Chinese citizen is slightly less well-off than the average Algerian. That’s right, China is #86 in individual wealth distribution.
In October, President Hu Jintao told the first national congress of the CPC since 2002 that the Party’s goal will be to "quadruple the per capita GDP of the year 2000 by 2020 through optimizing the economic structure and improving economic returns while reducing consumption of resources and protecting the environment."
It’s a mouthful in Mandarin, I’m sure, as is it is in English. But this push towards more widespread wealth provides plenty of fodder for those of us who know that the China story is far from over.
Over in Korea, a solid industrial base added to the world’s highest rates of broadband internet penetration feed an online economy with massive potential. Warren Buffett recently made his first visit to the country, and it’s about time, since his investment in Korea’s steel giant Posco (NYSE:PKX) has rewarded him handsomely as China’s resource hunger sends regional material stocks into the stratosphere.
But my play is on a company I also visited personally, one with a leading position in Korean e-commerce that brings the streets of the capital Seoul, full of vendors and merchants, into a supremely convenient internet marketplace with eager buyers.
This company is already one of Korea’s top brands, and with plans to expand into Japan and China (as well as Hong Kong) already underway, it’s a top momentum play for the new pan-Asian economy.
From the Fed down to the corner store, Americans are biting their nails over what will become of the domestic economy. If you think Uncle Sam has charted a course for disaster with deficits galore and a currency crisis, the worst thing you can do is ignore foreign stocks, which are set to be a safe harbor in turbulent times.
Regards,
Sam Hopkins
P.S.–The Orbus Investor portfolio bears out my international investment thesis. With four triple-digit winners and nearly a dozen more in double-digit territory from all over the world, it’s the only way to go global. To learn more and gain access to all of my recommendations and detailed reports from Asia, click here: http://www.angelnexus.com/o/op/3173
