China: Investor’s Stronghold?
Hello all,
Let me reiterate the other 1,000 leading sentences of recent articles: last week was the worst week in the history of the NYSE. It has had a catastrophic global impact. According to the Emerginvest heat map, the US was down 20% last week alone and other global indexes weren’t much better: Thailand down 24%, UK 21%, Russia 27%, Brazil 20%, Australia 21%, and India 16%. Despite a unified support effort from governments in the G-7 and US (which has spike markets worldwide today about 5% as of the penning of this article), credit markets are still relatively locked up. Hopefully the today’s surge will help loosen the stagnant lending, yet much remains to be seen.
A great summary of the global impact was released yesterday morning at Forbes.com: “In The Line of Fire: Emerging Markets.” It describes how those economies most at risk are the: “over-leveraged, commodity-dependent, and the extremely poor.” This of course includes Russia as one of the most commodity dependent nations, especially being hit hard with plummeting oil prices (oil is now under $80/bbl versus its high of over $140 this year), aid-dependent nations in Africa, and of course leveraged countries like Iceland.
One interesting point is that China (FXI) does not fall neatly into any of these categories. China was (arguably) the emerging markets poster child before the meltdown: a tremendous rising domestic market, explosive infrastructure growth, and significantly high savings. Those same qualities are helping it weather the economic storm better than other international markets. While many developed countries were posting 20%+ declines in the last week, the Shanghai A Shares Index fell only 12.8%. The Forbes article says: “With its massive foreign reserves and rapidly rising domestic demand, China seems well positioned to weather the crisis.” In addition, it has a relatively low loan-to-deposit ratio – only 65%.
While every single area is at risk right now in this turbulent environment, I personally think that China might be one of the best bets for investors in the moderate-to long term, especially now as the index is stumbling to recover from the seismic economic shocks.
Best,
Jonathan
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Filed under: Commentary on World Financial News, Emerging Markets, Jonathan (Marketing), World Analysis
I agree with you… But I’d still hold off until we see something like stabilization. Any rebound could take quite awhile. In particular, I’m looking at companies that cater to the Chinese market. HOGS, FEED, SOHU and other internally driven companies that do not have outside exposure, but have good balance sheets. I’d also be inclined to stay away from banks and real-estate as these are experiencing problems similar to the rest of the world. Not too sure about commodity driven companies yet.
jegan
Completely agree.
While it lets me breath a tremendous sigh of relief that capitalization has set in and panic selling has (at least for the moment) ceased, seeing continued days in the +/- 10% range a day is still an exorbitantly unstable environment.
We’ll see but today was a great start.
Jon