Equity markets around the world have definitely seen their share of volatility. And as earnings season for Chinese companies heats up, we’ll likely continue to see some significant ups and downs. But lately, there has been a decidedly bullish shift in investment sentiment towards Chinese companies.
I think that the latest good news from Europe, including the confidence-inspiring results of the recent European bank stress tests, will continue to have a positive influence on global sentiment. So while we will likely continue to see volatility through the summer, we’re seeing it increasingly in an upwards direction, with earnings season as a major catalyst.
So far this earnings season, with about a third of U.S. companies reporting, nearly 10% have raised guidance, while just 2.7% have lowered guidance — and a significant 71% of companies have beaten estimates. That’s about 9% higher than the average beat rate of 62% since 1998.
The market was up about 8% in July. Not to mention that the Chinese A-Share market has outpaced both, up 10.4% for the month-to-date. And I am expecting the largely-good results to continue for the companies in my China Strategy portfolio.
However, stocks aren’t the only assets headed higher. There are other, seemingly-unrelated, assets that are seeing sharp price increases…
- On my visit to France in June, I noticed that the price of a bottle of 2005 Chateau Lafite Rothschild — a great vintage from one of the most prestigious winemakers in Bordeaux — had more than tripled from $300 to $1,000 in less than two years.
- Also last month, a real estate broker friend of mine told me that newer houses in the $2 million plus price range in the largely Chinese neighborhood of Arcadia in eastern Los Angeles are going up in price and selling briskly to all-cash buyers from overseas, immune to the worst real estate downturn in California since the Great Depression.
- Then my wife told me that prices of high-grade Korean ginseng — a highly prized health supplement in Asia — have doubled in the past year at her favorite Chinese traditional medicine shop in Taipei, and that another 60% price hike is on the way.
- Finally, today when I turned on my computer, I saw that the price of garlic in Beijing has appreciated some 1,000% since 2009.
So, what do fine French wine, McMansions in L.A.’s emerging Chinese neighborhoods, Korean ginseng in Taipei and garlic in Beijing have in common?
Well, the answer is that all of the above goods have been purchased in bulk as investments by speculators from the Chinese coastal city of Wenzhou — a city that is a three-hour drive north of Shanghai with a 1.5 million population. Now, what’s special about Wenzhou is that it is the most entrepreneurial city in China — a country full of entrepreneurs.
Today, Wenzhou speculators have a reputation as the most successful and influential traders in China. They are usually ahead of the pack and get in early on major speculative trends.
For investors who want to follow the “buy what China buys” strategy, it is important to understand these speculators because they are the buyers to follow in China.
Investors are returning in a big way to the China market, and my inside connections in China are keeping a close eye on what Wenzhou investors are up to.
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