Thursday, February 19, 2009

Amidst this global turmoil, is China still the best place to invest in?

Well, according to Robert Hsu, Editor of China Strategy it certainly is. He provides his arguments below:-

“One of the hottest topics in the media right now is the rising unemployment rate in countries around the globe, especially with the massive layoffs occurring at some of the world's largest companies. Undoubtedly, rising unemployment is a big problem.

Case in point: Earlier this month, it was announced that the U.S.'s unemployment rate rose to 7.6% in January, with 11.6 million people in the U.S. currently unemployed. What's even more drastic is that in the last 12 months alone, the U.S. unemployment rate jumped 2.7 percentage points.

And the picture isn't any brighter for other developed and emerging nations. In fact, despite China's ability to maintain solid economic growth, the country has garnered the world's attention with its increasing number of unemployed migrant workers.

Due to the country's shrinking export sector, more than 10 million—perhaps as many as 20 million—Chinese factory workers have lost their jobs in the past 12 months. While 20 million is a huge amount of layoffs, we need to keep this figure in perspective.
China's current population accounts for more than one billion people. So, 20 million actually accounts for less than 2% of China's total workforce.

We also need to consider that this is not the first time that China has experienced an elevated unemployment rate. If you recall, back in the late 1990s, many of China's state-owned enterprises (SOEs) collapsed or became private entities. This compounded with the Asian Financial Crisis in 1997 to 1998 was a far more severe situation than the current unemployment issues in China, as more than 50 million former SOE employees were out of a job back then.

What helped solve China's unemployment woes in the late 1990s? China's expanding private sector. But the picture is different this time around.

What's Driving China's Economic Turnaround?

In the current situation, it is more likely that China's $586 billion stimulus package will help solve the country's unemployment problem, as it is funneling funds into infrastructure spending. So while many of the migrant workers who lost their jobs will return home to the countryside for subsistence farming, many others will find short-term jobs from infrastructure projects.

Early estimates project that China's stimulus package will create more than 40 million new jobs in the next two years. And the magnitude of this fiscal expansion will have the ability to offset a large percentage of the unemployment created by the decline in exports.

In addition, the strength of the Chinese consumer will help the service sector in China expand. Many retailers and businesses in the food service industry already have expansion plans in the work, which could create millions of new jobs this year.

In fact, McDonald's has already announced that it will open 170 new restaurants in China in 2009. This expansion will involve hiring 10,000 new workers and create thousands of additional jobs.

The growth in the Chinese service sector will also stimulate even more consumer spending, which you know is the leading driver of economic growth in China. So the fact that many Chinese businesses are expanding will likely boost domestic spending in China and propel the country's recovery forward.

I'm expecting the Chinese economy to turnaround in the second half of the year, and that's why I've been telling my China Strategy subscribers to start preparing now. We're already taking advantage of the increase in infrastructure spending from the stimulus package by investing in China Aluminum (NYSE: ACH)—China's leading aluminum producer—which is up 59% for us so far.
And we're filling our portfolios with Chinese companies that will benefit the most when China's economy fully turns around later this year. Just take a look at the gains some of my top recommendations have picked up since the Chinese markets bottomed on November 20:

China's leading medical device manufacturer—which expects to grow 20% in 2009— is up 80%. China's leading coal miner—which expects full-year 2008 profits to jump 110%—is up 60%. China's number-one restaurant chain operator—which expects earnings per share to rise 10% in 2009—is up 30%.

With gains like that in some of China's top companies, there's no denying that China's economy is already on the mend. It will be one of the few nations able to post robust economic growth this year, and that's why I think China will be the first economy to turnaround in 2009. That's a trend that you don't want to miss out on!”

Note: That's precisely why one of my clients, RS Management has invested in a Racecourse in China and has opened up some interesting opportunities for companies and individuals involved in horse racing – the Sport of Kings. Find out more...