Bill Bonner's take on China's stake in US finance house Blackstone is bearish. He cites the OECD, saying low interest rates, thanks to China and Japan, have encouraged buy-outs like this.
Bonner has a jaundiced view of the fees and wheeler-dealing of market-makers, and believes that a flood of Chinese investors' money is raising share prices generally.
Today's Australasian Investment Review, quoted in ACN Newswire, dissents from the bubble view, giving these reasons:
• Firstly, much of the rebound in Chinese shares since 2005 reflects a recovery from a four-year bear market, during which individual Chinese investors lost confidence in shares and allocated most of their assets to bank deposits.
• Secondly, profit growth for listed Chinese companies over the last year has been a very strong 78%.
• Thirdly, while the price earnings ratio for Chinese A shares of around 40 times is high by our standards it is only just above its 10 year average of 36 times and is well below its previous high of 60 times.The PE on Chinese shares is also way below the peak levels reached during previous share market bubbles, eg, the Japanese Nikkei index peaked on a PE of 70 times in 1989 and the tech heavy Nasdaq reached a PE of 160 in 2000.
• Finally, Chinese investors still have a very low proportion of their financial wealth invested in shares, around 25% compared to over 50% in Australia and 40% in the rest of Asia. Bank deposits on 3% or so interest account for 65% of financial wealth.So the long term potential for a higher allocation to shares is high.
The author of this piece admits things need to cool down and the recent raising of interest rates should help. But, he says, China's financial and economic fundamentals are sound.
The arguments are cogent and reassure us about the longer term; but I imagine it's possible that if naive investors in China suffer a setback, they may over-react and become bearish for some time to come. If so, and bearing in mind Chinese light industry's vulnerability to exchange rates, a bold investor might buy medium/large-cap Chinese stocks. Not immediately, perhaps - I seem to recall that historically, a major stock slide takes around 30 months to hit bottom.
Tuesday, May 22, 2007
Monday, May 21, 2007
More food for British bears - M4 up
Reuters reports M4 in the UK for the last quarter rose above 13% annualised. Where are all the blogs and websites that should be lamenting our improvidence? Why are Americans so much better at flaying their government for its financial mismanagement?
Panzner reviews Bookstaber on derivatives
Michael Panzner's view on the dangers of derivatives is confirmed in a new book by Richard Bookstaber, a senior insider in that world. "A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation " is available from Amazon here, where you will also find a review and further information about the author.
Panzner's Financial Armageddon site reviews it (under 18 May) here, quoting and commenting on a previous Wall Street Journal piece. He calls the whole system "Ponzi finance" and Bookstaber himself is calling for a reduction in the complexity of these financial instruments. See also my review of Panzner's Financial Armageddon, which considers these and other risks to America's economy.
Panzner's Financial Armageddon site reviews it (under 18 May) here, quoting and commenting on a previous Wall Street Journal piece. He calls the whole system "Ponzi finance" and Bookstaber himself is calling for a reduction in the complexity of these financial instruments. See also my review of Panzner's Financial Armageddon, which considers these and other risks to America's economy.
China puts Blackstone in its shopping basket
And the day before the next round of US-China trade talks starts, the IHT reports on the purchase of a $3 billion minority stake in private equity firm Blackstone Group. Nice timing.
Peter Schiff interview with MarketWatch
I'm not quite sure how to rate bears - stars don't give the right flavour. Honeypots? Claws? Anyhow, if Michael Panzner merits five of them, Peter Schiff is only a three or four, since he recommends a tailored suit/e of high-yielding, conservative, non-US value stocks as well as gold and mining shares.
For an introduction to his excellent book, "Crash Proof", see this. Click here for audio of Mr Schiff's interview last month on MarketWatch.com, and here for MW's covering note.
For an introduction to his excellent book, "Crash Proof", see this. Click here for audio of Mr Schiff's interview last month on MarketWatch.com, and here for MW's covering note.
China goes shopping for the world's resources
China is taking in $20 billion a month of foreign capital, according to this 9 March article from the International Herald Tribune. It has set up an agency to decide how to invest its (now) $1.2 trillion in foreign currency reserves.
There are many implications, some contradictory. Diversification could mean less demand for US Treasury bonds, and if China lends less to America, interest rates could rise in the USA. On the other hand, increasing its holding of other currencies will make it less disruptive for China to let the dollar drop against the yuan.
A stronger yuan will affect some Chinese businesses that trade with America, as previously noted. In a thread discussing America's trade deficit on China Daily, "tradervic" from Chicago says: "Mexico thought it had the cheapest labor market, welcoming all the American companies they could get. Then China showed up with their workforce, and those same American companies left Mexico, leaving the Mexicans running into America looking for jobs. It will be interesting to see what happens when the American companies start pulling out of more factories out China for Vietnam, Bangledesh, and other countries. It is like I told my cousins-in-law in China what happened to my cousins-in-law in Mexico and my immediate family in Detroit: Do not get too used to the jobs - they will not last forever."
I have previously suggested that China may be willing to accept these consequences, to some extent, as part of a strategic economic plan. Just as the Chinese in light industry should not take their jobs for granted, the US cannot rely forever on its bargaining power as one of China's biggest customers.
A Bloomberg article today explains how China is trying to manage the currency appreciation so as to limit the damage in employment terms. It also has a stockmarket bubble on its hands. Did China ever expect that wealth and success could be such a problem?
Now it can also start buying the world's assets. The IHT article quotes Jing Ulrich of J.P. Morgan: "They're not going to be looking for financial assets, but energy assets and natural resources, minerals — things China desperately needs." So bears who look to buy commodities as a hedge against US inflation, may be doubly motivated when they see a big player enter the same market.
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
There are many implications, some contradictory. Diversification could mean less demand for US Treasury bonds, and if China lends less to America, interest rates could rise in the USA. On the other hand, increasing its holding of other currencies will make it less disruptive for China to let the dollar drop against the yuan.
A stronger yuan will affect some Chinese businesses that trade with America, as previously noted. In a thread discussing America's trade deficit on China Daily, "tradervic" from Chicago says: "Mexico thought it had the cheapest labor market, welcoming all the American companies they could get. Then China showed up with their workforce, and those same American companies left Mexico, leaving the Mexicans running into America looking for jobs. It will be interesting to see what happens when the American companies start pulling out of more factories out China for Vietnam, Bangledesh, and other countries. It is like I told my cousins-in-law in China what happened to my cousins-in-law in Mexico and my immediate family in Detroit: Do not get too used to the jobs - they will not last forever."
I have previously suggested that China may be willing to accept these consequences, to some extent, as part of a strategic economic plan. Just as the Chinese in light industry should not take their jobs for granted, the US cannot rely forever on its bargaining power as one of China's biggest customers.
A Bloomberg article today explains how China is trying to manage the currency appreciation so as to limit the damage in employment terms. It also has a stockmarket bubble on its hands. Did China ever expect that wealth and success could be such a problem?
Now it can also start buying the world's assets. The IHT article quotes Jing Ulrich of J.P. Morgan: "They're not going to be looking for financial assets, but energy assets and natural resources, minerals — things China desperately needs." So bears who look to buy commodities as a hedge against US inflation, may be doubly motivated when they see a big player enter the same market.
All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
China goes shopping for the world's resources
China is taking in $20 billion a month of foreign capital, according to this 9 March article from the International Herald Tribune. It has set up an agency to decide how to invest its (now) $1.2 trillion in foreign currency reserves.
There are many implications, some contradictory. Diversification could mean less demand for US Treasury bonds, and if China lends less to America, interest rates could rise in the USA. On the other hand, increasing its holding of other currencies will make it less disruptive for China to let the dollar drop against the yuan.
A stronger yuan will affect some Chinese businesses that trade with America, as previously noted. In a thread discussing America's trade deficit on China Daily, "tradervic" from Chicago says: "Mexico thought it had the cheapest labor market, welcoming all the American companies they could get. Then China showed up with their workforce, and those same American companies left Mexico, leaving the Mexicans running into America looking for jobs. It will be interesting to see what happens when the American companies start pulling out of more factories out China for Vietnam, Bangledesh, and other countries. It is like I told my cousins-in-law in China what happened to my cousins-in-law in Mexico and my immediate family in Detroit: Do not get too used to the jobs - they will not last forever."
I have previously suggested that China may be willing to accept these consequences, to some extent, as part of a strategic economic plan. Just as the Chinese in light industry should not take their jobs for granted, the US cannot rely forever on its bargaining power as one of China's biggest customers.
A Bloomberg article today explains how China is trying to manage the currency appreciation so as to limit the damage in employment terms. It also has a stockmarket bubble on its hands. Did China ever expect that wealth and success could be such a problem?
Now it can also start buying the world's assets. The IHT article quotes Jing Ulrich of J.P. Morgan: "They're not going to be looking for financial assets, but energy assets and natural resources, minerals — things China desperately needs." So bears who look to buy commodities as a hedge against US inflation, may be doubly motivated when they see a big player enter the same market.
There are many implications, some contradictory. Diversification could mean less demand for US Treasury bonds, and if China lends less to America, interest rates could rise in the USA. On the other hand, increasing its holding of other currencies will make it less disruptive for China to let the dollar drop against the yuan.
A stronger yuan will affect some Chinese businesses that trade with America, as previously noted. In a thread discussing America's trade deficit on China Daily, "tradervic" from Chicago says: "Mexico thought it had the cheapest labor market, welcoming all the American companies they could get. Then China showed up with their workforce, and those same American companies left Mexico, leaving the Mexicans running into America looking for jobs. It will be interesting to see what happens when the American companies start pulling out of more factories out China for Vietnam, Bangledesh, and other countries. It is like I told my cousins-in-law in China what happened to my cousins-in-law in Mexico and my immediate family in Detroit: Do not get too used to the jobs - they will not last forever."
I have previously suggested that China may be willing to accept these consequences, to some extent, as part of a strategic economic plan. Just as the Chinese in light industry should not take their jobs for granted, the US cannot rely forever on its bargaining power as one of China's biggest customers.
A Bloomberg article today explains how China is trying to manage the currency appreciation so as to limit the damage in employment terms. It also has a stockmarket bubble on its hands. Did China ever expect that wealth and success could be such a problem?
Now it can also start buying the world's assets. The IHT article quotes Jing Ulrich of J.P. Morgan: "They're not going to be looking for financial assets, but energy assets and natural resources, minerals — things China desperately needs." So bears who look to buy commodities as a hedge against US inflation, may be doubly motivated when they see a big player enter the same market.
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