Investing in China

As financial communities around the world increasingly shift their focus on China, how to invest in China successfully has become a question of interest and a debate.  Currently, Chinese domestic A shares are not open to foreign investment, while Chinese B shares have few selections.  Although there are many Chinese companies listed in the US or Hong Kong, how to choose them wisely has become an issue to be solved.  Is investing in the shares of Chinese companies the only way to invest in the coming boom of China?  In this article, we shall discuss above questions.

In General, To Succeed Quickly...

To succeed quickly, a short cut is to learn and imitate the best.  For example, if you are interested in becoming a good gardener, then you should learn from the best gardener you know.  If you are in the tanker shipping business, maybe you should learn and imitate John Fredriksen, owner of the world's largest independent oil tanker shipping company Frontline, and Golar LNG.  If you are into directing or producing a movie, then maybe you should study Jerry Bruckheimer, who normally is able to turn a film into gold.  If you are interested in investing, then you should learn and imitate the world's best investors or traders. 

To Succeed in Investing

It involves persistence and hard work to become a successful investor.  Not only will one need to learn and imitate the greatest investors of the world, one will also need to be able to think independently and to make reasonable judgments.  An eager and curious potential good investor may find books such as "Money Masters" and "New Money Masters" by John Train exciting.  He or she will also enjoy reading "Market Wizards" and "New Market Wizards" by Jack Schwager.  He or she might also follow the paths and recent comments of current great investors or traders such as Warren Buffett, Jim Rogers, Paul Tudor Jones, Marc Faber, John Templeton, Peter Lynch, Li Ka-Shing (of Hong Kong), Carlos Slim (of Mexico), as well as various insiders of publicly listed companies.

Not only that, flexibility and independent judgment are also required.  To succeed in investing requires one not only to look at stocks in the US, but also around the world; not only stocks around the world, but also commodities, currencies, bonds, and real estates.  From all the above options, one is to make his or her own well-researched, independent judgment in order to pick an area of interest to invest in.

Financial Philanthropy

A well managed act of financial philanthropy will pay off, albeit most people would think of it as "contrarian investing".  We believe that philanthropy in the financial markets shall not only help the well-managed companies or countries who are temporarily in trouble, but also bring financial rewards to philanthropistic investors.

Examples would include the Asian financial crisis in 1997, the financial crisis of 1999 in Brazil, etc.  As a philanthropist investor, if you find that well managed companies in countries during crisis times deserve support, then you will invest in them, and try to save them from depressed share prices.

Other examples would include the Japanese equity bubble of 1989 as well as the Internet bubble in 1999.  Philanthropists in the financial markets would see a surge demand in the share prices of Japanese stocks in 1989 as well as those of the Internet companies in 1999.  Then, out of kindness of their hearts, they would sell or sell short of the shares of those companies in those times, in order to provide sufficient supply of the number of shares.

To Succeed in Investing in China

How the above is related to investing in China, one might ask.  Well, investing in China successfully requires not only all of the above, but also a understanding about Chinese language and culture. 

Although a fair amount of the information is translated into English, the majority of them, especially many of those that are vital to make a good investment decision, is not.  An understanding of Chinese culture will give you an idea sometimes others miss.  For example, a study of Chinese culture will explain why Chinese people, on average, tend to gamble more than Americans. 

Outlook for the Year 2008

 History tells us that the first week of a year normally gives the general trend of the movements of financial markets for the whole year.  In the first week of 2008, we have seen a drop in the stock market in the US, a rise in the stock market in Hong Kong and China, as well as a large upward movement in the prices of raw materials or commodities.

We believe that in 2008, shares in the US or Europe will likely to under perform compared to the prices of commodities.  For the people who wish to invest in the stock market, they may do better if they invest in the shares of Brazil, Thailand, Taiwan, Hong Kong, China etc.  For the flexible investors, they probably will receive better returns if they invest in sugar, cotton, corn, oak, palladium, platinum, gold, silver, currencies of the commodity exporting countries such as Australia, New Zealand, Canada, etc.

Thailand - The Central Bank of Thailand lowered its interest rates five times in 2006.  History tells us that whenever a central bank aggressively increases the supply of money, the stock market always goes up.  The Thai stock market has yet to outperform because of its political instability under military rule.  At the end of December 2006, election was held, and political stability is set to return.  Therefore, we expect Thai stocks will do well in 2008.

Brazil - The Central Bank of Brazil also loosened its monetary policies.  As a major commodity exporting country, Brazilian stocks have further to go.  We expect Brazilian shares to continue to do well in the near future.

Taiwan - We have discussed the Taiwan stock market before.  In fact, in the summer of 2007, we recommended buying Taiwan Fertilizer at 71.8 New Taiwan Dollar.  The reasoning is that whenever, as in the case of Taiwan stock market, share prices don't go down when bad news such as political instability come out, it shows the strength of the market.  Currently, many of the shares of the technology companies are trading below 15 times PE values and at dividend yield of above 4%.  No matter who wins the coming election, the stock market will probably continue to go up.  Of course, it will go up more if Mr. Ma becomes the president.

Hong Kong - Hong Kong pegs its currency to the US dollar.  When the Fed lowers its interest rates to prevent the collapse of the real estate market or a recession in the US, Hong Kong's bank also lowers its interest rates.  This will boost the supply of money of Hong Kong, resulting in a large inflow of money to the stock market.  Hong Kong is also good at catering to developing countries as well as countries with petro money.  For example, the Hong Kong Stock Exchange listed Vietnamese companies as well as companies from Central Asia.  It also started its first Islamic fund a few weeks ago.

China - Although the central bank of China, the People's Bank of China, has tightened its money supply, the gambling attitude towards the Chinese domestic market is hard to suppress.  With increased profitability of Chinese companies, the share prices of blue-chip companies will likely to continue to go up if they do not have too high of valuations.