The Investment U e-Letter: Issue #624
Thursday, January 04, 2007 China's Economic Boom: How to Invest in the Best Growth Opportunity for 2007
by Alex Williams, Managing Editor, Investment U
Last week, we looked at the tremendous profit opportunity in uranium, saying it could be the best-performing commodity in 2007. Today we'll take a look at the best overall market to grow your money in over the next 12 months.
The market, of course, is the roaring Chinese economy… In the last 18 months, the iShares FTSE/Xinhua China 25 Index Fund (NYSE: FXI) is up 102%. And it's up 65% since June. Our research suggests this trend will continue. In a special report released over the weekend, Oxford Club Investment Director Alex Green and three of Investment U's top analysts explain that China's economic boom will continue to be the #1 profit source for growth-minded investors in 2007. The following excerpt gives you a chance to look inside the report itself. It's called Profit from China: The "Waking Giant" of the 21st Century Is Set to Power the World's Economy and Investor Returns. We think you'll find it valuable. Good Investing, Alex Williams
Managing Editor, Investment U
China's Economy… The "Waking Giant" of the 21st Century
China is unequivocally one of the hottest investments in today's market. The country has transformed itself from an impoverished and closed agricultural society to a globally integrated industrial powerhouse. And investors who know how to position themselves now will make a lifetime of profits… In the past two years alone, stock funds in China have more than tripled the returns of the S&P 500. Its gross domestic product is growing at roughly 10% annually, compared to 3% or so in the United States. And consumer spending is growing at 13%. And the growth has enticed global businesses to quickly jump on board… Foreign direct investment totaled $51 billion last year, nearly double what it was in 1999. And it's projected to top $345 billion in the coming year. The nation has lifted 400 million people out of poverty, a transition some call "the fastest change in human history." China's middle class, now estimated at 150 million to 200 million people, is expected to double in size in the next five years. Today, Shanghai has 4,000 skyscrapers, twice the number in Manhattan, and plans to build an additional 2,000 in the next five years. And this is just one city in China. A very sustainable 9% to 10% annual GDP growth will make investing in China a lucrative target for years to come. The question is, of course, how do you safely invest in this unprecedented growth… and still walk away potentially doubling or tripling your money? Indirectly Profiting From 1.3 Billion People The problem of how to invest in China is amorphous and vague for all but the top investors like Warren Buffett, who has invested $1.2 billion in one of the recommendations in this report. After all, China is still a communist-run country, its government is unpredictable, financial reporting at public companies is less than transparent, and the country's stock market isn't liquid enough to safely invest in. But there are profitable alternatives… There are many foreign companies China relies on to fuel its economy and support its 1.3 billion people. It's an indirect, safer way to make money from China's massive appetite for growth. Investors who get into these investments now stand a great likelihood of seeing very healthy gains in the coming weeks, months, and years, many of which will be commodity driven like the ones below: - China's demand for steel caused the prices to double… and investors made 553% on Mittal Steel Company in 13 months…
- China's demand for copper pushed Phelps-Dodge, the world's largest miner, up 253% in 16 months.
- China's unquenchable thirst for oil drained supply from OPEC and pushed prices up by 63%. Investors in Valero Energy, the nation's largest refinery, collected 431% in 24 months.
- China's demand for concrete pushed prices up and investors in Cemex S.A., one of the largest concrete suppliers in the world, made 143% in 21 months.
China's domestic economy has become a powerful engine of growth, and it's not going to stop anytime soon. And top Fortune 500 companies are already falling over themselves to take advantage of what's happening in the world's most populous nation… - Microsoft says that it intends to invest $750 million in China over the next three years.
- Ford plans to boost its purchases of auto parts in China to as much as $1 billion annually.
- General Electric expects purchases from China - both parts and finished goods - to hit $5 billion annually in the next three years.
- Wal-Mart concedes that more than $10 billion in Chinese-made goods are sold in its stores every year.
- Motorola says its total investment in China will hit a record $50 billion this year.
As you can see, the biggest and most savvy investors in the United States are already putting money to work in this rapidly growing region at breakneck speed. The Safest Way to Invest in China's Economic Boom There are two classes of stocks that trade on China's major exchanges: A-shares, which are denominated in yuan and, until recently, could only be owned by Chinese citizens; and B-shares, which are denominated in dollars and can be bought by foreigners. You'll want to pass on both. (B-shares, in particular, are mostly failed privatizations, the sorriest bunch of public companies on the far side of the Pacific.) It's best to focus your efforts on companies that are big enough, sound enough - and honest enough - to list their shares on the New York Stock Exchange. The reasons are straightforward: the liquidity is better; the spreads are smaller; the commissions are lower; and most importantly, these companies use Western accounting practices - and publish their annual and quarterly reports in English. Editor's Note: You can get the full report on Amazon. It contains in-depth coverage of several booming Chinese industries, and profiles three companies that will benefit from the burgeoning markets in commodities, resources and the banking industry. Today's Investment U Crib Sheet - How is it possible to buy a Chinese stock here in the U.S.? With American Depository Receipts (ADRs). These are certificates that represent a specific number of shares in a foreign stock that is traded on a U.S. exchange. This makes it possible, for instance, to buy shares of China Mobile on the New York Stock Exchange (NYSE: CHL).
- In China, companies list their shares on three major stock exchanges - in Shanghai, Shenzhen and Hong Kong. BusinessWeek says the first two "are regarded as little more than casinos and dumping grounds for dud state-owned companies in need of cash." The Hong Kong exchange - the Hang Seng (^HSI) - is where most of China's blue chips are listed. The index hit another all-time high yesterday.
Shock Stocks
Shares of Brilliance China Automotive Holdings Ltd. (NYSE: CBA) climbed as high as $22.47 this morning, up more than 30% from its last close. According to its most recent earnings report, the $800 million Chinese minibus and sedan manufacturer grew its quarterly revenues 55% year-over-year. Oxford Club Portfolios as of 12-19-06 - Trading Portfolio 28 winners out of 31
- Perpetual Money Portfoli 8 winners out of 8
- All-Star Portfolio 7 winners out of 7
- Anti-Terror Portfolio 8 winners out of 9
- Gone Fishin' Portfolio 8 winners out of 10
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