The banking crisis, the liquidity squeeze and the collapse in home prices has sent China fleeing U.S. stocks. Can you blame them?
They hold trillions in U.S. debt that’s worth less and less every day. Their investment in Blackstone is down 84%, not to mention the shellacking they’ve taken on Morgan Stanley.
Across the nation, China investors and workers are "mad as hell" as they see layoffs mount as China Investment Corporation executives are attacked in newspapers and blogs across the nation.
You needn’t take my word. This chat room posting from the Financial Times of London tells the whole story: "They are worse than wartime traitors," says one recent chat-room posting. "Blind worship of the U.S. by so-called ‘experts’," complains another.
And the Chinese government is listening carefully. They know more than any other nation that financial instability can lead to political instability. Which is why they are taking their money out of U.S. Treasuries and using their trillions in cash reserves to corner the oil markets while prices are low and the returns are much greater.
Why, in the last 30 days, $39 billion earmarked for U.S. Treasuries were diverted to buying huge stakes in Russian, Brazilian and Venezuelan oil companies. At the same time, they lent Brazil $10 billion in return for a pledge for 160,000 barrels of crude per day.
As Jiang Jiemin, chairman of PetroChina, said in the China Daily: “The low share prices of some global resource companies provide us with some fresh opportunities.”
And they’re not only using their money to lock up oil reserves but also commodities as well — all to fuel their only infrastructure stimulus.
In the past 30 days, China Development Bank grabbed a 18% slice of Australian mining giant Rio Tinto for $19.5 billion.
That’s not only $19.5 billion that’s not going into U.S. Treasuries, but just one of many deals in the works that the Chinese have in play designed to increase their investment returns and lock up the world’s oil and commodities markets for their own benefit.
Here are two that most investors haven’t heard about: China Petrochemical’s purchase of Canada’s Tanganyika Oil and a bid by China Minmetals for OZ Minerals, an Australian zinc producer on the verge of bankruptcy.
China’s Move to Corner Oil and Commodities Markets
China’s move to corner oil and commodities markets and grow internally is an extremely shrewd move. After all, China’s growth will hit a mind-boggling 7% in 2009.
To be sure, that’s less than the sizzling hot years of 11% annual growth, but compared with the U.S. growth of 2% — you don’t have to be a computer scientist to know where the big money will be made in the next two years.
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China strategists also know something that President Obama, Treasury Secretary Geithner or Bernanke would never admit: That unlike the U.S. banking system, the Chinese banking system is much safer — with none of the exposure to the subprime mess.
In fact, most U.S. investors don’t know this, but the Chinese banking system is dominated by four big state-owned banks — banks that can write a check anytime they want — and without Congressional approval or bickering!
And with close to $2 trillion dollars sitting in their banks, there’s no liquid crisis in China. The Chinese government can write a check anytime they want, and it will clear!
And that’s exactly what they’re doing — buying up global oil and commodities assets instead of piling on more U.S. debt.
The Dangers and the Opportunities
The inevitable shock wave will not only send the dollar south but also drive more investors out of U.S. stocks and into China where they will profit not only from internal economic growth but also from currency appreciation and domestic spending as well.
And the result will enrich those investors who understand that capital ALWAYS flows to the highest return in good times and bad and are taking this opportunity to scoop up world-class infrastructure assets at 20%, 30%, even 50% off their past highs in advance of the pending recovery.
That’s why it’s crucial that you add top China stocks to your holdings now.
Top China Stock to Buy Now
Make no mistake about it, China leads the world in telecom growth. By 2010, half of the world’s 1 billion global subscribers will be located in China.
This is what makes China Mobile (CHL), our top China telecom, a great play for American investors. It’s not only a state-run oligopoly but also has handed us 73% gains since we bought it.
Our most recent update, posted online in the May issue of China Strategy, brings you the full story on China Mobile and why we’re banking on another 50% profits by year’s end.
With all eyes on the U.S. economy now, you couldn’t ask for a better time to add top China stocks to your holdings — before free-market forces smell a turnaround and bid these stocks higher and higher. As a China Strategy subscriber, you get immedicate access to Robert Hsu’s current recommendations and latest buy advice to help you safely build a fortune by profiting from the best opportunities in China. Try China Strategy risk-free for 90 days for just $99.
