Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Over the past year, I have heard a lot about how the Chinese real estate market was in a bubble and ready to collapse, similar to the state of the U.S. real estate market in 2008.
Anti-Chinese real estate pundits were saying to sell. “Chinese companies are crooks,” was a common theme and the communist regime there was not to be trusted by anyone, especially Americans, according to these talking heads.
While I do believe China has its issues and faults (heck, we all do!), the opportunity there for growth investors cannot be ignored; the country will continue to become a bigger influence in the global economy. I’m not saying the renminbi will become the go-to currency, but the economic influence of the country will only grow, especially in Africa and other emerging markets where capital is needed—we all know China isn’t hurting for cash.
The country’s real estate and financial sectors have yet to crash. The Chinese government does know a thing or two about wealth creation and financial risk. Trust me when I say it’s not the bunch of communist cronies running around with no sense of what to do that the anti-China pundits might have you believe.
China’s new leadership under Xi Jinping has a strategy in place to drive domestic consumption and reduce its reliance on foreign demand. Consumers in the country account for less than half of the country’s gross domestic product (GDP), so it’s an area that is in focus, with plenty of room for improvement. With 1.1 billion people and over 300 million people in the burgeoning middle class, the potential is enormous. Retail sales are expanding at the 13% level, which is impressive compared to the United States.
Yes, China is stalling, with growth expected to come in at the seven- to eight-percent range for the next few years; but those numbers are still pretty good, especially since they’re some of the highest in the world.
Even a survey by GfK showed that Americans are becoming more convinced China is catching up as a leading world economic power. In fact, more than 25% of Americans see China as the world’s dominant power. (Source: Harjani, A., “Many Americans see China as dominant economic power,” CNBC, November 4, 2013.) By 2020, about 36% of Americans suggest the country will be the world’s dominant power, while the U.S. falls to 43% from the current 59%.
I would be looking more to investing in Chinese stocks listed domestically and on the Hong Kong exchange. The recent debut of Chinese initial public offering (IPO) Beijing 58 Information and Technology Co., Ltd. (NYSE/WUBA), or 58.com Inc., in the U.S. and the recent upward move in U.S.-listed Chinese stocks have fueled the demand for growth. On the exchange-traded funds (ETFs) side, I like iShares China Large-Cap (NYSEArca/FXI).
We are clearly seeing a shift to China. Investors would be wise to consider investing in Chinese stocks at this time.
by George Leong, B.Comm.
