China Perspective

3 Comments:

David Cheong said...

Impressive. As what most of the people around the world, knows that China Market is getting richer and glowing fast. Many of the business Company getting their hands on the China Market. The way businessman had in mind is that in China, you can have low cost workers, while your products would be able to sell higher in other countrys.

9/1/06 2:48 PM  

Tom said...

Why such hostility for marketing (i.e. "smoke and mirrors")? The opportunity to invest in China didn't exist way back when for most retail investors, but now it does. What's wrong with letting others know about the opportunity? I'm not arguing that investing in Chinese equities right now is necessarily a good or smart thing, but I also don't think the investment banks are doing anything improper by putting it out on the table.

9/1/06 2:59 PM  

Mark Mahorney said...

I will agree that opening up markets is a good thing.

But let's understand that Wall Street and major companies invest in China, while the average person buying a Chinese ADR speculates on China, though they usually do not realize it. The difference is huge.

I know too many average Joes who know virtually nothing about the markets that have put sizable portions of their retirement savings in emerging markets funds. They've done this because their small town financial advisors, who in many cases only know slightly more about the markets and just enough to be dangerous, have convinced them that this is a good idea. The get these ideas from the analysts and hot shot financial advisors that come on TV regularly telling people they should have as much as 25% in international stocks. The average Joes are chasing returns and Wall Street is always ready to sell into the path of least resistance. The investors are naïve and the advisors and Wall Street firms are either just as naïve or unscrupulous.

There's not an iota of difference between the trends we're seeing today with sketchy foreign IPOs and commodities compared to the pumping of Internet stocks in the late 90s that got many analysts in hot water.

Please understand that I do not say that Wall Street firms should not offer such investments, just as I have said in the past that though I think he is a weasel Mr. Rogers has a right to write what he wants about commodities. I think making these available is a good thing. I particularly like all the unmanaged choices that are coming available via ETFs. What I try to do here is offer a perspective that's free from the bias of most market information tainted by Wall Street PR. To the extent that it comes across hostel, is a product of it being contrary, though I'd like to think more accurate and realistic. It's just not what people are used to hearing and that makes them uncomfortable.

To anyone that wants to speculate on China more power to them, just understand that it's not investing when the sum total the knowledge and research is last years GDP data, which most people don't realize is about as much as the typical emerging markets mutual fund manager really knows, though they will certainly pretend to know more.

I do not think it's a good idea for people to be collectively putting 25% of their retirement money in international investments. They're putting it there hoping to get a better return, but they do not realize that the reason they got a better return last year has nothing to do with the fact that other countries have outperformed the U.S. economically, and everything to do with the reflexive fact that those stocks have risen dramatically because the supply is limited relative to the demand for international stocks.

Bond investors understand that supply is part of the yield equation. Oddly, few stock and commodity investors view the markets this way. But the supply of stocks relative to demand for stocks within particular sectors and markets is just as relevant as it is for bonds.

People do not realize that over the last two years in putting more money into the growing number of international fund options in their 401k plans, that they were collectively holding back the potential of U.S. investments. Every dollar they send overseas is a dollar that didn't get put to work in the U.S. markets and that has long-term economic ramifications that we let our greed get in the way of due consideration. Individually, we do and should look out for our own best interest. If we would prefer to invest in Toyota over GM, that's perfectly understandable given GMs plethora of problems. But when we would prefer to invest in CNOOC than Exxon Mobil that's just idiotic, unpatriotic, and in my personal and controversial opinion potentially treasonous.

Personal biases aside if there are better risk reward ratios to be had, and there are, here in the U.S., then it would behoove us collectively to ignore Wall Street's drivel and support our own country first. Wall Street will in turn take the path of least resistance and sell us what we want, which in that case would mean more money available to U.S. companies with at least as much potential as say a Baidu.com.

9/1/06 4:23 PM  

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