Thursday, October 28, 2010

The Shifting World to the East

The United States has been the pioneer of ideas, research, innovation supported by ample wealth and tremendous vision of its Govt over the last century.

However, with the demographic shift (more older people people in the western world versus more younger people in the Emerging Markets of Asia, Latin America & Africa) jostling for the same pie has led to the rise of the powers in Asia.

For the past 2 years in a row, US has not been a leader in stock listings and bond issuances. New York has been replaced by Shanghai and HK.

Today's Bloomberg article confirms my view of the past few years that more and more companies from China, India, Brazil, Indonesia, Malaysia, Korea, Taiwan, Singapore and HK etc shall continue to rise since they offer a growth opportunity which was once available in Europe and USA over the past half century.

The reasons of the rise of rest of the world are very clear (now):
- Strong domestic consumption (due to rising middle class) - same as in Europe and US due to baby boomer generation in the 60's and 70's;
- Growing business opportunity - same as in Europe and USA in the 60's and 70's;
- Rising stock markets as a barometer - same as in Europe and US in the 60's and 70's;
- Rising currency values of Chinese Yuan, Indian Rupee, Singapore dollar, South African Rand, Brazilian Real - same as USD and GBP in 60's and 70's;
- Rapid Development of infrastructure - same as in US and Europe in the 60's and 70's;
- Strength and stability of the Govts especially financial strength - same as in Europe and US in the 60's and the 70's.

The theme is very clear, that over the next 10 to 20 years, all the above reasons will continue to drive growth in the emerging economies.

We also need to remember that US and European companies continue to grow more rapidly abroad than they are doing at their home base.

All this is leading to growing wealth in the Emerging Markets including rising IPO's and new bond issues which would be inconceivable just a decade ago.

The roar of the collective Emerging Markets led by China and India can be heard if you listen carefully.

In my view, China, Brazil and India will do very well over the next 5 years in almost all economic aspects followed by Russia. China shall also have influence on the growth of Indonesia, Korea, Taiwan, HK, Singapore among others since the highest consumption, export driven economy with the highest population supported by the strongest Govt in the region (with USD 2.6 TRILLION in reserves) IS China.

If this trend of the past 2 years of more IPO's being issued in Emerging Markets continues, then it is only a matter of time, that the rest of the world will become 70% of stock market capitalisation instead of 60% today which is when America will start losing its influence over rest of the world. We must note here that about a decade ago, US was 50% of the world's stock markets compared to 40% today and expected 30% by 2020.

Meanwhile, various countries are working to protect themselves which has been dubbed as the Currency Wars.

America knows the change will happen, other countries know it too that it is just a matter of time i.e. slow and gradual rise because most emerging markets can ill afford to disrupt the economic balance suddenly which could even lead to the downfall of some of the still "emerging markets".

Hence, if investments need to be considered, then do not shy away from Emerging Markets since that is where the growth and opportunity is.

To be smart and successful while keeping the principal investment intact, it is just wise to know that companies and countries with the highest cash reserves will do the best, in the coming years.

IPOs in Asia Grab Record Share of Funds as U.S. Offers Dry Up
By Michael Tsang and Lee Spears - Oct 27, 2010 8:01 PM GMT+0400

Saturday, October 9, 2010

The Rise of the US Economy : Or Is it?

Most people associate the rising of the Dow Jones Index above 11,000 points on Friday, Oct 8 2010 to the so called 'coming back' of the US economy or its growth. However, with trillions of dollars of debt, rising unemployment (with no signs of new job opportunities), growing budget deficits, irrelevant wars in Iraq and Afghanistan, weakening dollar, higher and yet higher rate of foreclosures of homes, banks under pressures both on liquidity front as well as on the stock market front, declining health care system and deprecating infrastructure, it is a slow and gradual slide into a stagnating economy that will become the US economy going forward.

Infrastructure: We all know that US has not built any major bridges, roads, subways, dams, power plants or even car factories et al since the 70's. Since last year there has been focus by President Obama himself, however, no major projects have yet been announced besides projects to reinforce existing structures around the country.

Joblessness: Aside from the financial services industry, which is the largest employer in the USA, tourism, insurance, hotel, real estate, retail sector, home furnishings, building materials, architecture sector, mortgage and real estate brokers and IT industry and various other sectors have been hurt in the past 4 years, ever since the economic decline started in June 2007. This shows no signs of improvement despite all the stimulus, forget jump starting the job market in a big manner.

Ever rising budget deficits: Wars in Iraq and Afghanistan, support for NATO forces, new drone attacks in Pakistan, efforts to break up Al Qaeda have all cost US a lot of money. In actual terms, these are sums in trillions of dollars and considered by the general public as sheer waste and politically motivated, after a point. Security and self defence is one thing and attacking other countries for prolonged periods with no apparent 'win' is completely another thing. Such deficits are not coming in control and seem like extremely wasteful expenditures. It is pertinent to note that US budgets are under such tremendous pressure that NASA and going to the moon and beyond, kind of projects have taken a back seat over the last 5-6 years.

Foreclosures: The bad loans given by banks due to easy laws and weak standards have now actually gone bad. Such has been the force of these 'sub prime loans' that it has led to the demise of long standing investment banks such as Bear Stearns, Merrill Lynch and Lehman Bros, and caused Govt owned mortgage insurance companies like Fannie Mae and Freddie Mac to buckle under and go bankrupt. the force has not only been felt in America but such poorly structured and terribly weak home loans have caused banks as far away as Ireland, Spain, Greece, Italy and Germany (mostly within Europe)to go under.

In order to recover such bad loans, the assets are required to be sold and loans settled. However, most of these assets are either commercial or residential properties situated within US. In order to sell such properties, court orders are required to ensure everything is being done legally. Already the sale of foreclosed homes are at depressed prices due to more sellers and than buyers. This week, it has come out that various large banks are cancelling such foreclosures which I think is due to 2 reasons a) that paperwork was done in a very shoddy manner and many good people were getting thrown out and b) public pressure is growing on these bailed out banks and bankers who simply do not care inspite of being funded by taxpayers who were able to survive the crisis only due to the bail outs by taxpayers. The stalling of the foreclosures by major banks will make the already weak market further weaker so expect a further decline in the real estate values in the coming 6 months.

Regardless, I believe that US stock markets will continue to do well in 2010 since most American companies though registered in US are increasingly doing more and more business abroad and not in USA. US companies such as Apple and Oracle, Microsoft and Coca Cola, Citibank and Goldman Sachs, Pfizer and Merck, Marriott and Hilton, Starbucks and McDonald's are all growing at a very rapid pace outside the US and able to generate growing revenues and profits for their shareholders from Asia, Europe and Latin America and not from within US. Hence, stock markets may deliver consistent and stable returns although the US economy and job markets may not pick up since jobs are being created in other countries and not at home for such US based companies. This reduces tax revenues for the Govt from individual taxpayers while putting greater pressure on sales of consumer goods and financial services and other goods and services that contribute to the growth of such companies across all sectors and have made consumer spending a major force in the past that led to the rise of America and American economy.

The best way to understand the dilemma of the US economy is the most recent TV show by Jon Stewart where it is funnily explained how the US economy - represented by its banks - is now a 'foreclosure based economy' because if the banks execute home foreclosures on customers unable to make their mortgage payments on time, then US economy and its banks will have financial losses and if they do not do foreclosures, then also the banks shall incur financial losses.

One thing someone can take away is that increasingly in the US, their economy and their stock market are decoupling i.e. not working in the same direction, at this time.

A good to watch video and good use of your 7 minutes and I urge you please do so.

Jon Stewart Oct 7 2010

Wednesday, August 25, 2010

The Growth of the Family Office: A Snapshot

With more and more top end clients (read billionnaires) becoming disenchanted with the model where investment advisors and bankers etc are in the same crowd of people who cannot accurately predict the future (including that of individual stocks or that of the stock markets), therefore, many wealthy people have opted to create their own investment offices from which they manage their own wealth. These are aptly called Family Office since they manage a family's money.

The main purpose of these family offices is to try to make their own investment decisions. There is no historical evidence that decisions made by self paid money managers are better than investment decisions made by bankers or other asset management companies like mutual funds or hedge funds etc. who have more resources at their disposal and the advantage of their huge size.

All models have their own positives as well as negatives since all are managed by human beings who have inherent biases and ability to make unique mistakes. It is likely that a family office manager may make decisions taking into consideration the overall big picture of the family's businesses, real estate & other assets, taxation, future generations, family preferences or family disputes etc. unlike an outsider who may not be encompass the criteria in its entirety nor have the complete information at their disposal, including not having their interest of profit maximisation aligned with that of managing the wealth of the family. The advantage of the banker or investment advisor includes access to huge network and immense resources that a large financial insitution can command including some of the most intelligent people.

The only focus that wealthy clients need to have is that they give money to a bank to manage for investment purposes and not for anything else. They must not expect tax efficieny or investment talent that is infallible or accuracy at all costs. They must also be aware that due to extremely high competition banks keep reducing fees (unlike family office which comes with its own set of high fees) and therefore clients get what they pay for!

However, the growth of family offices in the recent years indicates that more and more ultra high networth investors are getting disenchanted with banks or fund managers.

It remains to be seen whether family offices can directly invest into Private Equity, Stocks or Bonds etc with a better success rate than that of the various financial institutions over the coming years.

Love them or hate them, banks are such a financial institution that they are a necessity in todays world for many things such as current accounts & cheque books, Debit & Credit Cards, Trade & Corporate Finance, Fixed Deposits & Loans etc. Investors can avoid banks and asset management companies for investment purposes but the funds still need to be parked in a bank as cash or routed through banks to other opportunities and also given to other investment companies via banks and occassionally given to asset management companies who could be owned by banks.

It is interesting to read the article to get a better idea how and why family offices work and for who?

Family Fortunes
The firms at the top of the wealth pyramid, which manage the money of Europe's wealthiest families, cost millions to run
By TARA LOADER-WILKINSON

Saturday, July 24, 2010

US Banks continue to close at a faster pace : 103 banks closed so far in 2010

The global crisis is definitely slowing down or peaking which is indicated by the number of banks closing down in the US. In my view, the US will be the first to come out of this crisis since they have accepted the downfall and have come out with new regulations besides displaying transparency and were indeed the first to get into the crisis.

This year, in 2010, over 100 banks in the USA have been closed down by the regulators just in a span of 7 months. Total tally has reached 103 which is at a faster pace than in 2009 at the same time. It is estimated that at this pace, almost 250 banks may close down in the US. While in 2009, 140 banks had closed down and 25 in 2008 and only 3 in 2007.

In addition, US companies are shedding jobs at a very high rate. In all, approx 500,000 jobs are being lost each month. This number had risen to a high of 700,000 plus last year but has slowed down to half a million only. If we add at this rate for the past 3 years, we come to a number of 18 million net job losses in just 3 years.

Further, countries around the world which were unscathed are realising the impact of slowdown due to exports and joblessness among other factors. For example, China scaled down its GDP growth target from 10.5% for 2010 to 9.5% just last week.

With US sanctions taking affect on Iran in June, businesses in the Middle East that were supporting Iran by supplying goods, providing services such as finance and shipping have come to a grinding halt. It was announced yesterday, that several ships from Middle Eastern countries such as Lebanon and Turkey who were supplying oil and similar important raw materials have come under pressure not to work on shipping routes going to Iran with the fear of new sanctions.

Such isloated things like China, Iran etc are having further impact on the global slowdown.

While Canadian banks are involved in buying some of these closed banks and expanding their network. On the other side of the planet, down under, in Australia also the banks are expanding and buying networks of banks selling off their assets as such as RBS in Philippines and India. RBS also sold its existing branch operations in UAE (previously ABN AMRO Bank) to ADCB bank. This clearly indicates that all those banks that did not buckle under sub prime fallout nor displayed any tendencies to take unnecessary risks are now able to expand despite the global climate due to their own inherent strengths or of their economies.

We can see that not even one bank has been closed down in China (they continue to come out with bigger and more number of IPO's of banks), nor in India or Australia or Canada. Even most parts of Latin America are doing well.

The world is definitely shifting and the rules of capitalism are being rewritten.

It will be profitable for all those who embrace this change and can see the emergence of new trends, especially moving eastwards.

Jul 23, 10:26 PM EDT

US bank failures in 2010 surpass 100


By MARCY GORDON
AP Business Writer

Thursday, June 10, 2010

Great Article on how to make Investment decisions


This must read article is written by the creator of Dilbert cartoon - Scott Adams. It is a very real and interesting take on how to choose where to invest. Essentially, it says, no one knows what is going to happen next and therefore, one must think logically and decide what stocks to invest in. Mostly written with USA in mind, but the world is changing so fast that USA is no more 50% of the world's stocks, rather US markets are now less then 40% of the worldwide stock markets and declining rapidly.

Most people may not know but both in 2008 and in 2009, HK and Shanghai were the stock markets where the highest amount of new shares (IPO's for shares) were listed and a foreign market beat NY for the first time in years.

The article is very interesting and humourous and you must read it to enlighten yourselves - on How to Invest?

Enjoy!

Betting on the Bad Guys

Tuesday, May 11, 2010

The Top Private Banks in the World

It has been since June 2007 when the subprime crisis erupted in the USA and in May 2010, things continue to remain worse, at an edge.

Due to this unprecendentd crisis there have also been changes in the top private banks around the world. Interestingly, UBS and Citi continued to lose clients and their assets. Merrill Lynch which was absorbed by Bank of America also lost assets while it was able to survive as a merged entity with Bank of America. Some of the biggest beneficiaries in 2009 - on a global scale - were the European banks (BNP Paribas - Fortis, Deutsche and Barclays) with the exception of US based Morgan Staley who also gained market share. Chinese banks continued to gain market share in areas outside of asset management such as market capitalisation, largest IPO's, profitability, loan growth etc.

UBS continued to lose its market share from a peak of USD 2.2 trillion in 2007 as assets under management and is now down to USD 1.6 trillion in 2009 due to its issues with the US Government among other things.

Citi went down from USD 1.3 trillion to USD 332bn only in client assets but mainly due to its sale of the Salomon Smith Barney division. But then Morgan Stanely's assets (3rd largest in the world of Private Banking) also grew mostly due to its acquisition of Salomon Smith Barney.

Bigger is not always better. Hence, many client advisors moved to smaller boutique Private Banks or establised their own advisory firms and therefore lot of client assets also moved to smaller advisory firms and smaller boutique private banks in 2008 and 2009.

Sleeping giants could once again become asset-gathering machines

Friday, March 26, 2010

Fixed Income Investment Ideas

During March, the risk premium in the bond markets has continued to decline hence giving the bond prices a push upwards. Most bonds have risen quite well in the last couple of weeks, especially since first week of January. Three things have occured in the last few days. One was that the S&P rating of Greece was reaffirmed assuring the help of Greece by the wider European Union whch was confirmed today. This reduced the global risk so bond yields came down and prices rose. Secondly, the US Fed during the course of its meeting on 16 March announced that it shall keep USD interest rates at a low level for an extended period of time giving more certainty to the markets and hence once again reducing the yields, especially across high yield bonds. Thirdly, Dubai also announced that it will give fair treatment to its debtors and reduced speculation while announcing on Thursday - as usual - its plan for the debt restructuring of DP World and Nakheel. At the minimum, this brings a plan on the table, it remains to be seen whether this plan is beneficial to all stakeholders and the future credibility of Dubai. All these factors combined have reduced global risk premiums and caused bond prices to surge.

My FX bond ideas of last year have taken a beating unless GBP / EUR bonds were sold when both currencies started their decline sometime Jan onwards when the US market started rising and Greece and others started coming out with their troubles. For some investors, who hold GBP and EUR, there are various investment ideas if they continue to hold the currencies.

Meanwhile, some of the bond ideas that I have been toying with in the last few days are as follows:

1. Noble Group 2020 maturity bond 6.75% coopun bond - This bond was issued in Oct 2009 at USD 99.10 and has since then risen to USD 104 levels today but still yields 6.2% which is a good yield on a 10 year BBB- rated bond. The total issue size is USD 1.25bn including an additional placement of USD 400m in Feb at a price of UD 103.40 yielding around 6.3%. With the company doing a commendable job in their commodity trading/shipping sector, it is a matter of time before the yield compresses to below 6%, probably 5.5%, over the next 6-12 months, leading the bond price to rise to USD 106-108 levels. When reviewed in late Oct 09, at the time of issue, the bond was yielding approx 6.75% and today yields 6.2%.

2. ANZ Bank 5.1% Jan 2020 is another bond of a solid bank with AA rating yielding approx 5% and hovers just over par at USD 100.25 levels. One of the rare banks which during the crisis currently is in acquisition and expansion mode globally but mostly in Asia. It has received a new banking licence in India last month and acquired assets sold by RBS in parts of Asia. It also is hiring aggressively in 2010. This USD bond offers a yield of 5% on a USD 1.25bn bond and hopes to rise in price and lower its yield by later this year.

3.Nomura Holdings 6.7% Mar 2020 bond is a BBB+ rated Japanese Investment bank with a USD 1.5bn 10 year bond and a 5% USD 1.5bn 5 year bond, both issued in Mar 2010. This is the company that pickedup the bankrupt Lehman Brothers assets outside of USA and is quickly becoming a very large investment bank worldwide and will be in Top 5 or Top 10 investment banks in the world in 2010 and onwards. The 10 year bond at a price of USD 103.40 offers a yield of 6.2% and the 5 year bond at a price of USD 102 offers a yield of 4.5%.

4. Credit Suisse 5.3% Aug 2019 bond issued in Aug 2009 offers a yield of 4.85% at a price of USD 103. Credit Suisse has not had any major issues in the current crisis and continues to rise despite its competitor UBS having serious issues, both from Switzerland. This USD 2bn issue is rated A+ and in my view should offer a yield of 4% in about a year causing its price to rise to USD 108 levels approx.

5. Temasek Holdings 4.3% Oct 2019 is a 10 year bond issued by Govt of Singapore, rated AAA, one of the strongest in the world. The yield neither goes up much nor down and hence offers an extremely stable return from one of the strongest countries in the world and Asia.

All above are current ideas offering stellar returns from extremely strong rated issuers with the capability to withstand any double dip recession or a severe financial event happening in the next 12 months, should it arise, though I personally doubt it very much. The companies above have performed well in the crisis during 2008/9 and ongoing recession and should come out of it ahead of various other corporates.

6. Various other interesting ideas in USD / GBP / AUD space include names such as

a) BUMI Resources 2016 bond. Largest coal mining company from Indonesia with coal extraction rising from 45m tonnes to 65m tonnes in 2009. Chinese Govt as a debtor of USD 1.9bn and one of the hottest coomodity sectors (coal) in the world, this company is doing so well that its share price has risen from Indonesia Rupiah 500 levels last year (in the depths of the crisis to IDR 2350 today). The stock price has languished in the last 6 months but could be expected to rise again in the next 6 months after some tax issues are resolved and continue its journey to IDR 3,500 - IDR 4,000 levels in the coming 12 months. The USD 300m bond issued in Nov 2009 at 12% coupon has risen to USD 109 levels and continues to yield 9.5% and with some more yield compression will yield probably 8.5% at a price of USD 113-114 level in the coming 6 months.

b) Evergrande Real Estate and Country Garden Holdings, both Chinese real estate developers have USD bonds and both rated BB-. Evergrande's bonds ar USD 750m in size and issued in Jan 2010 at coupon of 13% for 5 year term maturing in 2015 while Country Garden Holdings issued a 5 year term bond of USD 375m size in Sep 2009 at 11.75% coupon. Evergrande has risen to USD 103 level yielding just below 12% while Countray Garden has risen to USD 107 levels yielding approx 9.5%. Country Garden also provided an additional USD 1.50 in cash payment to bond holders on Feb 24 2010 to dilute the technicals of the bond where company is now allowed to have a higher leverage and reduce fixed cost coverage ratio from 3.5x to 3x. This payment is in addition to the current bond price. Both companies are investing in second and third tier cities of China, from coast to coast and should not have any major problems that are more likley in larger cities such as Shanghai & Beijing. The Govt control and assistance to the real estate sector from banks and various rules, the fact that any investor needs to place 40% downpayment to buy any property besides their first residence are strong indicators of rising Chinese local demand unlike other countries where foreigners or higher leverage provides 'hot' money to circulate in the real estate sectors. Country Garden also purchasd the most expensive land in the world in Dec 2009 along with three other companies with a 33% stake being USD 3.5b land for the Asian Games site in Guanghzhou. All in all, I favour Chinese real estate companis despite various media hype in the recent past.

c) Vietnam has sovereign bonds which have been under pressure lately but the recenly issued USD 1bn bond in Jan 2010 trading at 102.50 levels offers a yield of 6.4% on the sovereign risk in a country which is doing well partly due to the Asian region that it is situated in. With a BB rating and a coupon of 6.75% and a yield of 6.4%, the 10 year bond offers a good opportunity to invest in USD. While an older bond issued in 2005 at 6.875% coupon trades at USD 108 levels and provides a current yield of 5.4% which has a size of USD 750m.

d) GBP bonds in Citi offer a yield of 4.8% for 2015 maturity and 5.7% on a 2018 maturity. Morgan Stanely provides yield of 4.8% on a 2017 GBP bond. Both are A rated issuers. While A+, JP Morgan has a yield of 4.4% on a 2016 maturity bond. UBS, A+, offers yield of 4.6% on a 2016 bond as well. London Stock Exchange is an excellent buy at USD 104 levels with yield of 5.1% in GBP.

e) AUD bonds from Commonwealth bank of Australia, AA- rating, gives a yield of 6.85 on a callable bond in 2012, final maturity 2017. BNP, a very strong company with AA- rating in AUD bond gives yield of 6.7% at price of approx USD 100 on a 2015 bond. While ANZ, AAA bond maturing 2014 gives yield of 5.6% at USD 99 levels. Rabo bank, another AAA bond, offers yield of 5.8% in AUD maturing 2014.

All in all, a dynamic portfolio can be customised based on above issuers that may include both highly rated issuers and high yielding bonds to meet anyone's needs and objectives while keeping an eye on when to invest and when to get out, to realize all or most of the capital gains.

Stay tuned for more..

Saturday, February 27, 2010

Article on Goldman Sachs


Please take out 10 minutes and read the fascinating article by clicking the link below.


Wall Street's Bailout Hustle

MATT TAIBBI
Posted Feb 17, 2010 5:57 AM

Monday, February 15, 2010

China goes to America

It used to be that Americans had the most money and maximum muscle power to go and acquire companies in other parts of the world or expand the American multinationals, until now.

Now increasingly the tide has turned. The Chinese and Indian companies (besides Abu Dhabi and Singapore Sovereign Wealth Funds) are now acquiring strategic, minority and majority stakes in the same multinationals they used to fear just a decade ago. One person's crisis is another person's opportunity!

Chinese companies have invested over USD 56b in 2008 while the precise numbers for 2009 are not yet available but could easily surpass USD 100bn if the 111% growth between 2007 to 2008's USD 56bn is to be extrapolated.

The recent filing under a US legal requirement with the SEC has shown what kind of companies has China invested their surplus money over the last 1 year. The companies are 82 in number and only a few have a large stake while most others are small stakes of less than 1% of the listed stock. However, the key point is that China has shown transparency with the public filing of such information as well as indicated where they are investing some of their reserves instead of just buying US Treasury bonds.

It is also my current opinion that in 2010 the US markets shall outperform most other major and lot of emerging markets. The reasons being that emerging markets did a fantastic recovery and provided between 40% to over 100% returns in 2009. This may not be possible due to slow global recovery, slow demand, still declining employment opportunities, fear of personal spending due to prevailing joblessness, lack of boom in any part of the world with the exception of China and some sectors in Brazil/India, inflation having caused unnecessarily high prices and wage disparities besides the major Governments worried to save their financial institutions in the past 2-3 years and that every year different markets outperform, among other factors.

This year hopefully the US markets will be one of the major markets to outperform besides Australia and Canada. The last two would outperform due to their robust economies and financial systems that have not suffered unlike the rest of the world in addition to their enormous natural resources of oil and other minerals & metals. US shall hopefully outperform since it cannot decline any further after 2 years of severe declines, decreasing job losses, foreigners investing more - just like China is - to capitalise on the enormous potential of USA over the long term and the FIFO philosophy (First In, First Out) in the recession. I believe America is almost 80% out of the recession at this juncture and shall continue to strengthen over the coming year. The weak dollar is helping the exporters of America to export their goods at a cheaper price and most major corporations are declaring profits and improving. The problems of Europe are just beginning and shall accelerate, in my opinion, and shall peak by sometime next year in 2011.

The Shanghai Stock Exchange peaked at 6,100 level in Oct 2007 and fell down to a level of 1,700 in Oct 2008 and today is trading at 3,000 level in Feb 2010. I believe it has a long way to go and a rise to 6,000 level should be expected in the next one if not over the next 2 years which basically means doubling the investment made in China index or funds (not just in individual stocks).

With China announcing almost USD 10bn of stock related investments in USA in 2009, it about time other investors should follow. Also please note that this USD 10bn is just the investments in listed securities and does not include the amount invested in unlisted securities, private equity transactions, real estate or US Treasury or other corporate bonds. China is expected to increase their investment size again in 2010 so stay tuned...

The next opportunity shall be both in China as well as in America at least over the next year, if we watch where the professional and sophisticated money is being invested.


How to Profit From China’s Next Move

February 11, 2010
By Keith Fitz-Gerald, Chief Investment Strategist, Money Morning

Thursday, January 14, 2010

Chinese banks overtake global big banks

It is the sign of the times. In the 1990’s Japanese banks occupied most of the top 10 slots, then they were replaced by the Americans. Since 2000, mostly US banks occupied the top 10 slots in banking globally besides a few odd European banks and then they are now replaced by the Chinese. Now, it is the turn of the Chinese banks. Effective 2009, the Chinese banks occupy the majority of the top 10 slots.

The amazing chart below indicates that 4 banks out of the top 5 are Chinese according to market capitalization. And 6 out of top 13 also are Chinese. Some other notables are 3 banks from Brazil and one from Russia. Except for Standard Chartered, no other European bank shows up in the top 15 and only 1 from the USA!! The strength of the Canadians shows up with 2 banks in the top 15, out of which Scotia has inched up while RBC remains as strong as it was 10 years ago.


Interestingly, no German or Swiss bank is there and of course, none of the Japanese have the strength they commanded 20 years ago, mainly due to their decades long decline in the general economy.

Although many people would claim that Chinese would fall down, however, my opinion differs for the next few years. Chinese have the population size that neither US, nor Japan and neither Europe ever had. China also has sizeable trade surpluses due to their strong exports. Most of all, what China has today, none of the above countries ever had: a surplus saving of over USD 2 trillion, to steer their economy confidently, in the event of any trouble.

What the Chinese also have today, mostly due to lessons learnt (hopefully) due to the ongoing crisis is that they can monitor and alter their monetary policies to change interest rates, amend cash reserve requirements of banks and help the citizens to gain access to loans in order to stimulate economic growth etc.

While it is quite possible and likely that Chinese banks may form a bubble, but until now, the Chinese Government has indeed done a commendable job and the banks are under no pressure to fall, and I expect the rise of Chinese banks both in their domination and rise in share prices to continue to more commanding heights.

The FT has an excellent article on the matter which is a must read whether you wish to enhance your wealth by investing or if you are a banker.

From the Financial Times:
China banks eclipse US rivals

By Patrick Jenkins in London
Published: January 10 2010 22:32 | Last updated: January 10 2010 22:32

This trend is expected to continue and grow.

Stay tuned for the world's largest IPO by a Chinese bank ABC in the coming months...