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  • darkcloud1945 darkcloud1945 Jan 22, 2013 10:49 AM Flag

    China Trade Balance

    What's the board's opinion on future China-USA trade relations? It seems that "jobs" are now foremost in political circles and trade barriers may start to arise. While I agree that China is a great destination for US made products, our trade disparity is adding to the payment imbalance and stiffles job creation domestically. On the plus side China's low cost manufacturing helps ward off inflation here but hurts our tax revenue as a result.

    If JOBS, JOBS, JOBS will be the emphasis for this administration I believe China's exports to the USA will be an item. The USA developed the technology for the medical equipment industry but the "manufacturing" was lost to the Swiss. Hopefully any discoveries for "Energy Production, Transmission and Shortage" will translate into USA manufacturing.

    China needs to keep developing their domestic economy---if their standard of living continues to increase, it follows their "personal products" demand will also. I repeat myself when I say over half the Chinese population are women and the younger set are more prone to desire "gem stone jewelry". Any statistics or opinions on that trend? Are Western "tastes" gaining ground through Chinese media? Too bad Merle Olsen past away---a spokesman for gemstones like Olsen was for flowers is a catalyst China may need to accelerate the trend. Any info on what Jade's domestic marketing centers on?

    The potential is sure there in China---ENZO revenue should continue at an increasing pace---more stores, broader product lines, more brand recognition---time is on our side.


    Sentiment: Buy

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    • Article from Zacks Weekend Edition on investing in china

      If your stocks have limited China exposure, then don't expect outperformance in 2013. Exposure might be buried in revenues or equity risk taken directly, but it MUST be there. That is because China is a market elephant now; you can't avoid it.

      The internal migration reshaping the country? - Epic
      Its demand growth? - Picking up
      Investment signals? - Positive!

      All of this provides a strong catalyst to take shares higher. So in the next few paragraphs, I am going to show you what is going on with China and how to invest more successfully in 2013 because of this key trend.

      What is Going on With China's Economy?

      China's consensus GDP forecast is rising.

      Growth is forecast at +8.1% for 2013 after +7.7% in 2012. We heard much about China's slowdown, but not much about its current recovery. Truth is, over 40% of ALL the world's economic growth comes from China -- no small matter for investors.

      Inside China's financial markets, I see upside -- China's retail sales are up +14% year over year. With low forward P/E ratios, Chinese stocks look reasonable even after the recent eight-month long rebound. China's managed currency may be a political hot potato, but it lowers currency risk for investors.

      China's CYCLICAL slowdown signaled its end in June 2012.

      The 2012 slowdown was a back-end signature of their huge 2009 fiscal stimulus. Late in 2010, tight money began to attack a housing price bubble. Two years later, slower growth cooled prices, and put in place a stable expansion.

      In June 2012, the People's Bank of China [PBC] cut its average 6.5% rate to 6.0%. It can go to 5.3% to match the 2010 low. To skeptics who see slack, I ask this: Why doesn't the PBC go to 5.3%?

      After ending speculation, housing bottomed. Prices have come down -10% to -15%. Wage growth of +10% to +20% a year means home affordability is up +30% to +50%. Now, home and auto sales - accounting for 40% of China's consumer spending - should pick up.

      How does a bull respond to criticism that China is just a pumped-up Communist State focused on cash flow rather than equity returns?

      The answer: There is an epic move underway. The Chinese economy is around 50% rural, while the U.S. is under 2% rural now. In 2000, China was around 35% rural. This internal migration is in its middle stages, with citizens moving from small farms to work in factories, while living in apartments in cities. High growth reflects supply and demand - in terms nearing 200M migrating peasants.

      Net urban-rural migration in China? - a whopping 21 million for 2015.

      Break this into Hokou (migrants with local residency rights) and non-Hokou (migrants without local residency rights) or the "floating population". In manufacturing and construction, non-Hokou workers make up 43% and 56%, respectively.

      How This Affects the World Economy?

      The global growth bright spot in 2013 - China.

      Outside Asia, growth looks flat. The world's GDP growth forecast is +3.2% for 2013, compared to +3.3% for 2012. Strong China growth and weak growth in advanced countries is not unrelated. China may be the only major economy right now where monetary policy works the way it is supposed to. In Japan, Europe and the U.S., the tail of weak GDP growth wags the dog of monetary policy.

      Zero rates in advanced countries point another finger towards investing in China.

      This is an unintended, but not an unforeseen, consequence. Fed and ECB policy tries to raise domestic growth via interest rate pre-commitment and bond buying. However, look for higher P/E multiples on all stocks, including Chinese stocks. The reason? Low rates push investors into risk.

      Faster Asian development means capital flow and currency appreciation pick up.

      In Asia, countries compete for exports to slow-growth advanced economies. Currencies like the Singapore Dollar and South Korean Won rose +7% in 2012. Appreciation is the likely trend in 2013 for the entire region, except Japan and Australia. Another benefit for the right stock investors!

      Now, What is the Investment Strategy?

      You have to position yourself for growth in the Chinese economy.

      By 2013, there will be 1.36 billion people in a China with $18 trillion in GDP, at constant prices. By 2015, GDP gets to $21 trillion. In two years, $3 trillion in new spending materializes - 20% of the current U.S. economy.

      A major policy catalyst in 2013 - new Chinese leadership comes into power.

      A value investor has a play. China is five years out from a major sell-off on the Shanghai Composite. Share prices went from over 6,000 to 2,100. They are now around 2,300. Below, I see upside continuing for the FXI iShares China 25 Index.

      FXI China 25 Index Fund (blue) vs. S&P 500 Equal Weight (green)

      FXI China 25 Index Fund (blue) vs. Industrial Inputs Price Index (red)

      How to Play this Trend?

      Chinese or non-Chinese picks can track China GDP growth and confidence.

      When China grows +8% a year, and purchasing parity adjusted incomes are $12K, out emerges +$1000 in fresh income to capture each year. You don't have to buy Chinese stocks to tap into that opportunity. From consumer discretionary stocks to auto makers, industrials, old school materials; there is no shortage of U.S. based companies that stand to benefit from this trend.