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Fast Growing Economies Lead To Rising Stock Markets
By Monty Guild
We have already had good rallies in countries
like India, Brazil and Korea; and their rallies
are continuing. Further rallies are expected in
Singapore, Hong Kong, Indonesia, China,
Philippines, Turkey and others in coming weeks.
To view the Indian Market Index graph (Bombay
Sensitive 30 Index, July 9, 2007) please click on
the hyperlink given below
http://www.guildinvestment.com/ARhome.asp?VAfg=1&
RQ=EDL,1&AR_T=1&GID=0&linkid=224&T_ARID=187
These rallies are due to the decline of the U.S.
dollar and the outperforming economic growth in
these nations versus the more developed nations.
Those events are sending ever more investors into
the global markets. Our U.S. centric money
manager friends often call us for ideas of how to
invest in these markets. The calls are becoming
more frequent as foreign markets continue to
attract more money which had been previously
focused in bigger, more established markets.
To view the Hong Kong Market Index graph (Hang
Seng Index, July 9, 2007) please click on the
hyperlink given below
http://www.guildinvestment.com/ARhome.asp?VAfg=1&
RQ=EDL,1&AR_T=1&GID=0&linkid=224&T_ARID=187
Remember that these emerging or newly emerged
markets can be volatile. We do not like to chase
stocks in these markets, but we do like to buy on
dips.
BASE METALS GETTING GOING AGAIN
After resting for a few months, base metals
stocks are once again moving upward. The
investment world is realizing that the demand for
base metals is a multi decade demand cycle. Rome
was not built in a day and neither will the
Chinese and Indian infrastructures.
GOLD IS READY FOR ITS SEASONAL BOUNCE
Gold often bottoms in late July or August, and
moves up into the fall and winter. Two major
stock brokerage firms wrote large institutional
reports about this phenomenon in the past week.
"CHINA SOVEREIGN INVESTMENT BODY TO GET FIRST
FUNDS"
This was the headline reported Friday June 29th
the Financial Times. It is very important for
global markets as the Chinese are seeking more
return on this pool. A pool which could
eventually be worth trillions of dollars. China
had a total surplus of about $1.2 trillion at the
end of March 2007. Not all will be invested in
this fund, but the fund will start with $200
billion.
They are moving from low yielding treasury bonds
and other fixed income investments into global
stocks, bonds and maybe commodities. Their first
investment was $3 billion into Blackstone, the
large investment group which just went public in
the U.S. After the Chinese invested, the IPO
created a substantial paper profit for the
Chinese.
We expect the Chinese sovereign fund to be
aggressive, and this will lead to a more
aggressive outlook for global markets. Many
other countries already have sovereign investment
funds, and they are generally responsible global
stock and bond investors. Of course, these
investment funds are held by those countries with
surpluses, countries with deficits like the US,
do not have such funds.
INFLATION - THE NEXT BIG THING.....HOW TO
CAPITALIZE UPON IT AND PROTECT YOURSELF FROM IT
Inflation will be the world’s next big economic
problem, and the inflation of the coming years
will cause many to seek shelter in stocks and
commodities to protect oneself from the inflation.
Whenever inflation exists, the prices of goods
and services rise as people begin hoarding.
CHINESE INFLATION WILL LEAD TO HIGHER PRICES
WORLDWIDE ....WHEREVER CHINA EXPORTS
Chinese inflation is heating up to about 3%.
According to the Financial Times Lex Column on
Saturday June 30, 2007. "...including negative
real interest rates (after tax) which have helped
fuel the Shanghai stock market bubble. Higher
prices have also led to a series of modest
tightening measures, with more likely to come."
Negative real interest rates mean the cost to
borrow after tax is less than the rate of
inflation. This creates incentive for
speculation to keep ahead of inflation.
Like most managed economies, the leaders of China
do not want to admit that inflation can happen,
so they ignore it and end up reacting to it late.
This feeds inflationary psychology if not
handled promptly, and the inflationary psychology
manifests itself in speculation in stocks, real
estate and other assets in order to keep ahead of
rising prices.
China is the world’s largest exporter, and most
of its exports go to Asia; secondly to Europe,
then the U.S. and Latin America. Since China's
low prices will have to rise to maintain profit
margins, and since Chinese prices are lower than
most other countries anyway, everyone can expect
Chinese goods to pressure prices higher in their
country. Global inflation is a feedback loop and
complicated to explain. Suffice it to say that
inflation in a major producing country can easily
spread to all of their customers.
China is a repository of world growth, and it
will be a continued presence for the better (and
maybe a little for the worse) for the foreseeable
future.
BRAZIL
Brazil is a growing and fast developing a major
economy that is often forgotten.
Currently they are in better shape with
commodities and manufacturing booming, plus home
ownership is taking off. They are a power in the
manufacturing of aircraft,
steel, computers and
many other machines.
INDIA.....THE THEME IS STRONG AND ACCELERATING
GROWTH
The Indian stock market is doing very well.
There we have been focusing on capital goods,
machinery and equipment suppliers. Indian
economic growth is heading higher. Today it is
only slightly below China, and is second fastest
in the world for a large country. India will
continue to grow fast.
The Indian monsoon which is very important to
rural income is normal thus far. We are about
one third of the way through monsoon season. If
the monsoon continues normal, India will continue
its rapid growth rate. If the monsoon is poor,
then the political forces will demand handouts to
farmers and slow the growth rate. In either case
Indian growth will be rapid.
We are finding opportunities, and we believe our
themes are in sync with what is happening in the
global markets. If you are interested in hiring
Guild Investment Management to manage your
portfolio, please contact us. Thanks for
listening.
For More information on global investing visit
http://www.howtoinvestglobally.com
For More information on Guild Investment
Management Services visit http://www.
guildinvestment.com
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consent of Guild. Article Directory: http://www.articlecube.com Mr. Guild founded Guild in 1971. Prior to founding the company he was an analyst at a bank and a hedge fund. Mr. Guild is a recognized expert in the areas of international investing and economics. He has been a writer and speaker on economic issues.
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