Ford's a great company. It didn't escape my notice that they did not accept nor need a government bailout. Amazing what companies can do when left to their own devices.
BTW, a contrarian opinion on China....
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Guest post: defying the crowd on Chinese stocks
October 31, 2012 4:00 am by beyondbrics
By Stuart Rae of AllianceBernstein
Slowing economic growth, uncertainty about government policy and disappointing returns have made equity investors wary of China. In other words, it’s a perfect time to hunt for investment opportunities.
China’s lacklustre economy continues to spook investors. Real gross domestic product (GDP) slowed from 7.6 per cent in the second quarter to 7.4 per cent in the third. But the sequential trend has probably bottomed and growth is now running at an annualized rate of about 7.5-8 per cent. And you can’t ignore some key underlying indicators of economic activity.
For example, cement production and exports both rose by a year-on-year rate of about 10 per cent in September after collapsing earlier in the year. These are veiled signs of strength from the world’s largest economy.
Skeptics argue that the central government isn’t doing enough to foster growth. It’s true that there’s little appetite for policies that might stoke inflation or saddle banks with bad debts like in 2008, especially with a leadership transition around the corner. But smaller stimulus moves have been effective, including cuts to interest rates and the reserve requirement ratio for banks, as well as accelerated subsidy programs. These actions should go a long way toward supporting a moderate pace of economic growth.
What about the stock market? The MSCI China Index, which represents Hong Kong-listed shares investible for foreigners, rose by just 9 per cent this year through September in US dollar terms, trailing the 16 per cent gain of the MSCI Asia ex-Japan Index. Domestic shares have done even worse, with the MSCI China A Index approximately flat this year.
This underperformance has a flip side. China has gone from being one of the most expensive markets in Asia five years ago to one of the cheapest. Some industries – such as real estate and autos – offer exceptionally good value.
Given the precarious economic situation, research is crucial to identify opportunities and to avoid traps. For example, we scrutinised fears of a Chinese property bubble by analysing real estate conditions in 70 cities. We found that house prices and home sales are more resilient than widely perceived. A government push for more affordable housing doesn’t imply a collapse in prices because when wages are rising by 10-15 per cent a year, houses become more affordable even when prices stay stable.
While some parts of the Chinese consumer sectors are expensive, keep your eyes on the auto industry. Valuations of automakers have declined amid volatile sales, yet there is plenty of potential in the coming years as the middle class grows and urbanisation increases. What’s more, many Chinese auto companies are quite profitable – in contrast to their western peers.
I’m not an outright bull on China, but I think the bears who predict a catastrophe are a bit shortsighted. The evidence we see supports a stable outlook and a modest economic recovery – which underscores the potential for attractively valued stocks in specific areas. Against this backdrop, shorting China has become a classic “crowded trade”; like all crowded trades, it might seem like the right move for a while, but it can be a dangerous place to be, especially when the facts change.
Stuart Rae is Chief Investment Officer of Pacific Basin Value Equities at AllianceBernstein
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