China, Not So Risky After All?
This post is from Michael Yoshikami, President and Chief Investment Strategist of YCMNET Advisors, a wealth management firm:
In times like these, safety takes on a whole new meaning and risk is redefined on a daily basis. China, that emerging economy with so much promise, has often been criticized as a bubble waiting to burst. Well, it turns out that the United States, Europe, Australia and the entire global economy was in the same bubble bath.
Hear that? It's the sound of the plug being pulled from the tub, bubbles bursting and whatever that remains, going down the drain. Suddenly, China doesn't seem so scary anymore.
Hey what’s a 50 or 70 percent drop among friends? We're not just experiencing a bear market, we're at the start of a global recession. Perhaps it's time to give China a second look. After all, the first asset to deflate is often the first asset to recover.
China's Shanghai Composite Index is down over 60 percent year-to-date --a bitter loss for investors that bought in at the high. But now, considering the difficult circumstances facing the rest of the world, China presents some very compelling investment opportunities.
Valuations haven't been this low in ages. China appears to be one of the most discounted markets in the world. Sure, China will have slower growth. And no doubt, there'll be less consumption from countries that import Chinese goods.
Still, the fear might just be overdone. The downturn we are seeing is cyclical, not structural. I mean really, if your growth rate goes from 9 percent to 5.5 percent, it's a matter of deciding if the glass is half full or half empty. 5.5 percent isn't too sluggish on a real world basis. Just ask any industrialized economy whether they would like a growth rate of 5.5 percent?!
The government has committed 7 percent of gross domestic product to be invested into the economy to help stimulate growth. Many of these projects are core infrastructure build-outs that will benefit China in the long term.
The stimulus package is three times greater than the United States' TARP plan. And with oil prices going from $140 a barrel to $50 a barrel, this is the perfect tailwind for an economy that imports massive amounts of energy. Similarly, the cost of other commodities have plummeted, all of which, provide China with increased profitability margins.
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I was in Beijing three weeks ago and spent some time with a member of China’s monetary agency. He said that China was committed to taking aggressive action, not merely symbolic steps.
A week later, China announced the 7 percent stimulus package. With a huge amount of funds on reserve, the Chinese government has the ability to continue taking additional significant and dramatic action to bolster their economy.
Oh, to have that cash in the bank. China's got it.
China has definitely taken a major hit. But for courageous investors, this spells opportunity on a silver platter. Remember, the key to investing is to buy when significant corrections occur that overshoot reasonable valuations. Risk is defined by fluctuation.
Check out China. It might just be safer than you think.