The Right Place with the Right Opportunities

“Ahead of the Street” Column, by Mitchell Clark, B. Comm.

There is one solid fundamental shaping up for commodities and that’s growth in the Chinese economy. China expects about eight percent growth this year and the country almost always underestimates its official growth numbers. According to Goldman Sachs, real economic growth in China is usually much higher than the government says it is.

I think we take just how important China’s economic growth is to the rest of the world too lightly. Without China’s burgeoning appetite, we wouldn’t be selling the country manufacturing or industrial equipment. And countries like Brazil, Australia and Canada wouldn’t be selling near as much in the way of natural resources if China wasn’t buying. Right now, China is beginning to wind down some $586 billion in economic stimulus spending. The country’s plan is to create about nine million new jobs this year, but there is an inflation problem and that has to be dealt with in order to reduce the current bubble in real estate prices.

Without China right now, the world’s economic prospects would be a lot dimmer. Interestingly, China’s economic planners (remember China is still governed by a one-party system) are trying to shift their economy away from its reliance on exports and more towards domestic consumption. This trend has accelerated in recent years and it’s well-evidenced by consumerism for cars and other big-ticket items.

No doubt there will be increasing pressure on China to float its currency on global markets, as it does make their goods artificially cheaper abroad. Domestically, there’s a lot of pressure on China to raise interest rates to help cool the housing boom and keep inflation at a more reasonable rate. This will make the Chinese yuan currency even more undervalued in global terms.

Chinese stocks that trade in U.S. dollars on American stock exchanges certainly experience waves of enthusiasm from investors. They have a tendency to trade as a group and are volatile because of all the pro traders moving in and out of positions. We’re just at the cusp of fourth-quarter earnings numbers from a lot of U.S.-listed Chinese companies and I have high expectations for a lot of businesses.

No matter what happens in China in terms of economic policy and development, the country is now very important to the rest of the world. The investment opportunities there are still plentiful, but the most important thing from the investor’s perspective is getting the timing right.