Indian & Chinese Stocks.
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I decided to focus on two markets that are inextricably tied to the U.S. economy. Chinese stocks & Indian stocks. When it comes to China, what products in your home aren't made there. Have a problem with your Dell computer? Next time you call customer service, ask what the weather’s like in Mumbai.
In this section we take at look at China and India. Who by the way, export some pretty good movies. But enough preamble. Let’s roll.
China is a magnet for foreign investment. In 2003 China received $53 billion in foreign capital beating out the U.S. with $40 billion. Population estimates are between 1.3 billon – 1.5 billon people. Most of the population resides in rural areas and many are moving to the cities to be near factories. Aside from day trading, it's only the ways to escape pverty. This group is one of the cheapest labor pools in the global economy.
China’s economy grows at over 9% per year. Faster than the U.S. Beijing is one of the busiest building construction zones in the world. Needless to say, this joint is jumping. China consumes huge amounts of energy while at the same time lacks environmental controls. All 340 cities do not meet clean air standards.
China leads the world as the #1 exporter of technology goods. This includes computers, cell phones and a host of digital toys. I don’t see any other countries stealing this title any time soon.
Stock market prices have been flying over the past several years. There have been a couple corrections but the word on the street is, 'when will the bubble burst'. 70% of all Chinese stock market activity comes from the public.
When the irrational public is driving the prices of Chinese stocks, well, anything can happen. Speculation is now the fad. People are leaving their jobs to become day traders. Crowds form at brokerge offices to monitor their stocks and many have just moved in.
Are we looking at NASDAQ 2000? Some people chose their stocks if the ticker includes the number 8, a symbol for good luck in Chinese. That method may work for some hedge funds, but still.
The Chinese do not have unlimited income to buy stocks. The buying craze will have stop and the bubble will pop.
The question is, are we going to see a sharp decline then rebound? Possible. There really is strong growth momentum in China. Many industries are benefiting from fiancial services to energy and construction to raw commodities.
Are we going to see a crash? As I said, it's the public that moves the Chinese stock market. There just may not be any buyers left.
If you feel Chinese stocks are headed for a correction, here’s a way to profit. ProShares UltraShort FTSE/Xinhua China 25 is a new ETF that makes money if the FTSE/Xinhua China 25 should drop in value. It's an easy way to short China. If the index rebounds, you lose. This ETF went live on November 8th 2007.
Bottom line: Many believe China is due for a correction. I can’t blame this all on CPGW (Chinese Public Gone Wild), the global credit crisis of late summer to early fall had an effect on values as well. Wait till the Wall Street mess settles, as it seems to be doing now. If you do buy in the near future be aware a correction looms. I don't see financial collapse but I definitely see long term value. This country has long term growth stamped on its forehead.
Assuming everything you ever want to know about a stock is reflected in the price, here’s the chart for iShares FTSE/Xinhua. 41% is invested in Chinese financial institutions.
What do you think?
India’s GDP is growing at about 9% per year. While China is famous for producing inexpensive products, India is known for services. What might not be known about India is “outsourcing” is not its only claim to fame.
India is known for IT outsourcing and maintains a dominant position. Leaders include Tata Consultancy Services, Infosys and Wipro. Within the past several years India has moved into telecom, pharmaceutical, financial services, automotive and Bollywood.
Over the past year, venture capital and private equity have invested almost $8 billion dollars. Half of India’s 1.1 billion population is under age 25. And to make things easier, English is spoken. And last but not least, an entrepreneurial spirit.
Bangalore is home to many industries and is one of India’s larger cities. One major problem though. Infrastructure stinks. Airport delays, power outages, traffic jammed roads, potholes and cows, dogs and rickshaws on the highway slow growth. There is limited if any mass transit and companies such as Infosys spend millions on transportation for their employees.
You need strong infrastructure to support fast growth industries and you have to move employees from here to there. India is sorely lacking this department.
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With that being said, India has a commitment to democracy. Many of India’s companies have branded names in the U.S. These are listed above. Similar to China, you have a high growth stock market in which many leaders are going through correction.
China and India present great opportunities. The best way to play these markets is through ETF's. ETF’s are a good way to get your feet wet; and you don't have to pick and choose among companies you never heard of. Lets take a look at some charts.
Is Infosys Technologies a buying opportunity? Well managed company. It's earnings were in line with Wall Street expectations. One of the leading technology companies in India with operations in alomst 20 countries.
Sales in 2007 were $3,090,000,000 and net income grew 53.2% from last year
I'd say so.
But until I know for sure, I'm getting myself a mango lassi.
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