The global financial system is highly intertwined, so no corner of the world has been left unscathed by the current financial crisis.
As the financial crisis shakes out, there is a huge shift in power taking place. For many years, the world’s financial power used to lie in the hands of debtors (i.e. the U.S.). But since the financial crisis has forced economies around the globe to massively de-leverage, those with highly leveraged financial systems have been hit the hardest.
And even economies that are rich with natural resources, like Brazil, Canada, Australia and Russia, have suffered during these tough economic times. That’s because they have high levels of debt, and also spent extravagantly during the commodities boom that has now fizzled out.
As a result, there’s been an incredible amount of deleveraging occurring around the globe. And in this new era of rapid financial deleveraging, entities with highly leveraged financial systems — like the U.S. and Europe — are more vulnerable to the financial crisis than those with less leverage — like China and Japan. That’s because these countries and regions are flush with capital and have provided safe havens for global capital during the recent financial turmoil.
For example, an investor leveraged 10-to-1 would be wiped out by just a 10% drop in price, but investors without leverage, a 10% price drop is not a big deal. So those with minimally leveraged systems have been more insulated from the crisis.
That means China, the world’s largest saver nation, does not need to deleverage its financial system and undergo painful economic adjustments in the Western world. Actually, since China has the world’s largest foreign reserve — which is now approaching $2 trillion — China is helping other nations overcome the global financial crisis. And it is likely that China will continue to use its current account surplus to purchase U.S. Treasury securities and indirectly help finance the U.S.’s financial bailout efforts.
So while the U.S. and European nations face the most severe financial crisis since the Great Depression, business continues as usual in Beijing since its financial system is insulated from the ongoing credit crisis. In fact, even as liquidity-starved banks in Europe and the U.S. struggled to stay afloat, Chinese banks reported little increase in their bad debt ratio in the past quarter.
And although China is subject to the same stock and property price declines plaguing the rest of the world, Chinese banks have far less exposure to asset price declines than banks elsewhere.
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Keeping Economic Growth Robust
Despite its surplus of funds, though, China isn’t completely isolated from the financial crisis storm. The world is experiencing an economic slowdown, and China’s economic fundamentals are slowing down like the rest of the world’s.
But what sets it apart is that its economic growth is still robust. In fact, most economists believe that the Chinese economy will grow by 8% in 2009 — an impressive rate, considering that only a few countries will post a positive GDP rate in 2009.
I’m expecting 7% to 8% growth, which is below the consensus forecast of 8%. To keep China’s economic growth humming along, policymakers are focusing on boosting domestic investments and consumption. These two components are becoming the primary drivers of growth within China, as demand for the country’s exports have declined in the past year.
So to support these components, China issued one of the biggest economic stimulus packages in its country’s history. As part of the plan, there will be vast amounts of money put towards building and improving railways, roads, highways, bridges and other infrastructure.
In addition, the plan will fund the improvement of healthcare, education, and environmental protection projects. Many of these projects have already been set in motion in recent weeks, and as more are started throughout the year, China’s economy will continue to improve.
As China’s economy improves, so will domestic consumption. Like consumers in the U.S. and Europe, Chinese consumers are more mindful on unnecessary expenditures. But remember that while consumers in the other countries have no extra money to spend, most Chinese consumers have savings to live on, since China’s average savings rate is over 30%. So while consumers in the U.S. and Europe are cutting back, the Chinese will continue to spend in 2009 and improve China’s economy.
As you can see, there are many strong, positive fundamentals supporting China’s economy. And in the coming months and years, China will offer a relative economic safe harbor for investors who are wary of the banking crisis in U.S. and Europe.
A Safe Harbor
Many investors are hesitant about investing in China, especially because of the sharp sell-off in Chinese stocks last year. Of course, Chinese stocks have not been spared from this global stock bear market, but remember that the root cause of the stock market sell-off in China and the U.S. is largely different.
While U.S. stocks declined in 2008 due to the fundamental deterioration in the U.S. economy and financial system…
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…Chinese stocks sold-off mainly because of over speculation. The Chinese stock market traded to a record high in late 2007 and was due for a correction.
And now that China stocks have corrected, a good portion of the risk has been lost, yet the high reward potential remains. The opposite is true for investments in the U.S. — there’s more risk here and less reward now.
Going forward, I continue to think that China is the best place to be investing our money during these tough economic times. The country’s combination of domestic spending, government-driven domestic investments and strong stock market fundamentals should allow the Chinese economy to hold its own against a global recession, and in turn, create profitable investment opportunities.
Three Stocks to Buy Now
So where do the profitable opportunities lie right now?
In companies that are the primary beneficiaries of China’s economic recovery. That means we should put our money in stocks that will benefit from China’s recently implemented stimulus package — ones involved with domestic consumption and investment Even in times of slower economic growth, the companies in these areas should continue to perform well.
Let’s take a look at the three top China Strategy stocks that fit this bill — and should be in your portfolio.
Profit From China’s Love for Cell Phones and All Things Wireless
Make no mistake about it, China leads the world in telecom growth. By 2010, half of the world’s one billion global subscribers will be located in China. This is what makes China Mobile (CHL) a great play for American investors.
China Mobile has dominated the Chinese wireless sector during the past decade. In the past few years, China Mobile grew at the expense of the three other giant Chinese telecom companies, especially the landline companies. And now, China Mobile currently makes more than all of the other Chinese telecoms combined.
Some investors were concerned that the recent restructuring of China’s telecom market would harm CHL’s business, but the company’s strong fundamentals have allowed it to remain a leader in the long-term.
China Mobile dominates in both distribution network and brand image. The company makes more money than all the other telecom companies in China combined. And it has a strong brand name and unrivalled distribution network in the country, particularly in rural parts of China.
And this marketing advantage is much more difficult for China Mobile’s competitors to overcome. And lastly…
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…while other companies are just now offering a new G3 wireless technology, China Mobile is already developing more advanced 4G wireless technology — the next step after 3G.
As you can see, China Mobile still has strong advantages in the Chinese telecom industry. China Mobile has been one of our core holdings ever since we started China Strategy, and I think there are more profits to come. Find out my specific buy-under price by joining China Strategy today!
Profit From China’s Thirst for Oil
As China’s economy develops, it has increasingly relied on oil imports to fuel this growth, And in China Strategy, we are invested in the top company that will play an increasingly important role in the China’s need for oil. This company is one of the three main oil and gas companies in China, but carries the distinction of being the only one permitted to conduct exploration and production activities offshore in conjunction with foreign governments and companies.
In fact, the company has monopoly drilling rights on huge undiscovered reserves of oil and natural gas in the South China Sea. Over 70 international oil companies have teamed up with the company to win rights to drill in the area. The company also has a special government-granted power to acquire up to 51% interest in any offshore oil and gas discovery in China’s jurisdiction at no cost, even when the discovery is made by a foreign company.
With new oil and gas found in the South China Sea by international companies every day, this company gains new energy assets without having to pay a dime. Talk about a competitive advantage!
As demand for oil increases and new discoveries are made in the South China Sea, I expect this company to continue to benefit. For more on this company, including my specific buy advice, join China Strategy today!
Profit From China’s New Housing Boom
As Chinese workers invest their newfound wealth, one of their top priorities is to own their own home. And considering that the housing market, tax laws and immigration laws in China are attractive to foreigners, the demand for housing in China is running strong.
Our top company in this sector is China’s leading real estate services company which recently released excellent third-quarter earnings. The company’s revenues were $39.3 million, an increase of 28% from $30.6 million for the same quarter in 2007. Net income was $10.9 million, an increase of 28% from $8.5 million. And earnings per share clocked in at 13 cents, up 2 cents from last year.
The company also reported its results for the first nine months of 2008. Total revenues were $115.5 million, an increase of 63% from $70.7 million for the same period in 2007. Income came in at $31.3 million, up 62% from last year. And EPS was 39 cents, up from 26 cents. The results are healthy, and impressive, considering the state of other housing markets in the world. To learn more about this company, join China Strategy!
As China’s economy recovers from the global financial crisis, there are some great investment opportunities to profit from this. Of course, not every Chinese company is poised to profit, so in China Strategy, I’ll guide you to the best investments for your money. Join China Strategy risk-free and receive the names of five other stocks that are set to surge. Don’t miss the incredible profit potential — add these five stocks to your portfolio now.
