impacting stocks and the financial markets. Stocks recently featured in the blog include: Wal-Mart (NYSE: WMT), Target (NYSE: TGT), Claymore China Small Cap ETF (NYSE: HAO), Coca-Cola (NYSE: KO) and Aflac (NYSE: AFL).
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Here are highlights from Wednesday’s Analyst Blog:
China Booming Again
The long-term key for China is to generate more consumer demand at home so it is not forever dependent on exports to fuel its growth. This is the mirror image of what the U.S. needs. We cannot forever run trade deficits, consuming more from the rest of the world than we produce.
It is the trade deficit that drives the expansion of U.S. debt held by China, not our fiscal deficit. Remember that point, it is an important one — and one that the vast majority of talking heads on TV just don’t seem to get. Of course, each country’s exports are another country’s imports, and for every trade surplus, there must be an offsetting trade deficit somewhere else in the world.
So far it has been a pretty sweet deal for the U.S.: we get all the goods that fill the shelves of Wal-Mart (NYSE: WMT) and Target (NYSE: TGT), and they get little green pieces of paper. Recently those little green pieces of paper have been going down in value. How much longer does China want to send us real useful stuff in return for those pieces of paper (or, more accurately, little blips inside of computers)?
They have done so thus far because along with the paper, making that stuff they send abroad (actually, they export more to Europe than they do to the U.S.) creates jobs, and China needs jobs for social stability. However, so does the U.S., as our unemployment rate approaches 10%.
The deal is getting progressively less sweet for both sides as the dollars keep on piling up in Beijing. The solution over the long term is for China’s 1.3 billion people, the majority of whom still live in poverty, to start to consume more. If that can be accomplished, then Chinese society will be more stable, it will be able to maintain its employment levels and the U.S. might actually start to add a few jobs.
This would also greatly benefit the millions of smaller non-state-owned firms in China. The best way to play that trend is in the Claymore China Small Cap ETF (NYSE: HAO), which has by far the largest exposure to the Chinese consumer of any of the China ETF’s. Buying individual stocks that are direct plays on the Chinese consumer is a risky proposition and is probably best left to those who can both read Mandarin and decipher financial statements written in it.
While China’s market has done well so far this year, so have most emerging markets. However, the economies of most emerging markets have not come close to matching the performance of the Chinese economy.
Underpinned by the strength in China, and rapidly growing inter region trade, the World Bank sees all of East Asia growing at a 6.7% rate in 2009, up from 5.3% growth seen back in April. Since Japan’s growth is likely to be rather sluggish (but also improving), that implies solid growth for the rest of the region. As the auto sales numbers yesterday showed, the Korean auto industry is not exactly hurting that much anymore.
In short, there are better places in the world to invest than in the U.S., and most U.S. investors are still far too heavily weighted towards domestic investments. However, you don’t just have to buy ADR’s or ETF’s to have international exposure. U.S. companies that get a high proportion of their sales from Asia will also probably benefit from the growth there. Coca-Cola (NYSE: KO) would be a good example to take a well-known name. Aflac (NYSE: AFL) is another, although for them the revenues come from Japan, not China.
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