Friday, September 21, 2007

Stock up

Last night the really smart, looks twenty years younger than she is, works hard and well dressed Chinese spouse and I went to a dinner sponsored by Credit Suisse for folks that have an account with that august financial institution.

My wife enjoyed the dinner and financial information. I enjoyed the beer.

More than that I can't say. I did learn or actually relearn some things about investing in Hong Kong. The stockbrokers and banks here use the right terminology but have different definitions for those terms. For example: if a brokerage agent in Hong Kong tells you " This is a good medium term investment" they mean it is a good investment for about 6 months. Short term investments are normally on things you stay invested in for less than 60 days. A long term investment means out to about 1 year to 18 months. In other words, they do not believe in long term investing and gear all of their advice to get-rich-quick thinking.

The hotshots they had giving opinions had some advice to buy stocks in various areas but were basically saying "Buy China, make 100% in 12 hours" I found this to be rather odd advice. Not that Chinese stocks are not profitable right now but; I cannot believe that any responsible brokerage house would issue an almost unqualified "Buy" to Chinese stocks.

You can look up the sources for what I'm going to use yourself, and you can believe me or not but here is why I would exercise caution in buying Chinese stocks

1. The Chinese stock market is a speculative market. Even the Chinese admit this. Speculative markets, especially those with lots of investors who have never lost anything are dangerous markets.

2. The Chinese stock market has too many people using unsecured capital to buy stocks. Many small investors in China have taken out multiple mortgages on their flats to buy stocks. If the markets fall those investors will owe several times the value their entire worth. There is no real way of knowing how many people this will affect but the murky banking laws in China make fraudulent loans a real problem.

3. The Chinese stock market has not fully realized the level of anger and concern by US and European consumers over the poor quality of Chinese made goods. Yes, some of this is unfounded and some of it is essentially racist or jingoistic but that doesn't matter because if a significant portion of Western consumers simply say "Nope, if it is from China I don't trust it and will do without it" then the Chinese economy is in trouble and the reasons for them doing it don't matter. By essentially blowing off the concerns of overseas consumers of Chinese goods the PRC is exacerbating the problem. I believe that one or two more big scandals, real or imagined involving goods made in China would result in a spontaneous mass boycott of Chinese goods.

I also found it interesting last night that they didn't mention defense contractors like General Dynamics. I would think, given the war in Iraq and the one coming between the US and Iran that investing in companies that make bullets, bombs and military airplanes might be a profitable move. And, please, don't give me any moral posturing about not wanting to invest in death. Especially if you investing in Chinese sweat shops, factories and coal mines.

Until Next Time
Fai Mao
The Blogger who isn't an Investment analyst

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