I did a spot today on CNBC’s FastMoney where the topic was reports of declining China growth. Here are the talking points I used to brief the anchors for the spot FYI.
China is slowing somewhat this year due to
-weak growth in Europe (China’s biggest trading partner and
-shrinking property market (residential property prices falling in all major markets)
-policy is also pushing fixed asset investment spending down, consumer spending up as a way of changing the structure of the economy over time
-Western observers are making too much of the slowdown. When they do, they sell China stocks. Slowdown will be modest, from 9% last year to 8-8.5% this year.
Reasons:
-income growth is strong in cities, even stronger in rural areas
-government finances are very strong (tax revenues growing 2x GDP)
-monetary policy is easing
-restrictions on owning property, mortgage loans, being eased
Investment ideas
-It’s not Kansas out there. Investing in China is still very risky
-rule of law still weak (property rights, courts, judges)
-transparency still lacking (audits, financial statements, insider dealing)
-so be careful investing directly into the Chinese market
Safer way to invest in the China growth story
-buy companies in safer places that make their money in China.
-China growth is driven by flows of resources.
-natural resources from south Asia (Australia, NZ, Indonesia)
-technology from north Asia (South Korea, Singapore, Taiwan)
-capital from Hong Kong, Singapore
-build a portfolio of stocks from these areas to mirror China growth
-Stocks in my portfolio today on this theme are down big today on the weak growth news. I will be buying more. They include:
–RIO, Rio Tinto, aluminum, copper, iron, energy
–BHP, BHP Billiton, coal, iron, aluminum
–FCX, Freeport-McMoran, copper, gold
–EWY, ETF for South Korea, (Samsung is 21% of the index), Chinese cell phones
–EPP, ETF for Pacific ex-Japan, i.e., Australia, NZ, Singapore, Hong Kong
–EWS, ETF for Singapore
–CAT, Caterpillar, (China infrastructure investment moves a lot of dirt)
–PTR, Petrochina, (Chinese stock, bet on rising oil consumption inside China)
–EMR, Emerson Electric, US capital goods exports to China
–YUM, Yum Brands, US company owns KFC franchises in China
JR
