i think whatever else may happen, copper demand is just up, even as copper supply remain constrained. but the world can afford to pay more for more copper.
pass me your e-mail and i can try supplying some copper research.
i do fcx, just as i do paas and abx and gdx, etc
i like to stay with the bigger outfits.
From: J
Sent: Thu, April 21, 2011 8:23:30 AM
Subject: Re: Emailing: Asia’s other giants - Eureka Report
monetary policy
china actually, imo, welcomes moderated food inflation, as opposed to out-of -control food inflation
china needs to aggregate capital to the hinterlands where most of its people live
the cities have had 30 years of growth on growth on growth, and 30+ savings rate
it is time for mobilization and force march of that savings, from the cities to the countryside and from the coast to the inlands
calibrated administrative measures and modulated food inflation are most efficient for what needs doing
the minute our premise is set correctly, the usual faults of the press and analysts become clear
From: A
Sent: Thu, April 21, 2011 8:08:51 AM
Subject: RE: Emailing: Asia’s other giants - Eureka Report
WHEN YOU SAY YOU ‘’BELIEVE CHINA WOULD BE EASING SOON ENOUGH’’
ARE YOU THINKING EASING MONETARY POLICY OR EASING ECONOMY STRENGTH
From: J
Sent: Thursday, 21 April 2011 10:05 AM
Subject: Re: Emailing: Asia ’s other giants - Eureka Report
Eureka trots out india and indonesia , right on time.
in the past, whenever the economists and businessweek and iht and wsj trots out india and indonesia , china surprises on the upside. let us see if events work out the same this iteration.
working in indonesia these days, and it is a little better than saudi arabia .
never worked in india , so cannot say what prospects it sports. but yes, i agree, it is big.
i can say that the overseas chinese seem to invest more in ancestral land than the overseas indians in forebear domain.
believe china would be easing soon enough.
From: A
Sent: Thu, April 21, 2011 6:07:29 AM
Subject: Emailing: Asia ’s other giants - Eureka Report
Asia’s other giants
By Michael Feller
April 20, 2011
PORTFOLIO POINT: As China’s property and infrastructure sectors show signs of over-heating, there is still plenty of growth ahead of India and Indonesia.
In the early stages of the industrial revolution, European traders would look to China as the ultimate El Dorado. But until Hong Kong and other trading posts were colonised in the mid-nineteenth century, entrepreneurs and adventurers would make do with the so-called spice trade, investing in India and the East Indies. As history would show, however, this was a profitable exercise.
Today we can learn lessons from that history. China is a difficult place to invest in and, more importantly, it is showing signs of over-heating after a 30-year boom (see China at the precipice). This could have significant consequences for Australia.
But for investors who are constructing their portfolio appropriately, this need not be a catastrophic change, nor does it mean an end to investing in our region. Indeed, two other Asian giants – India and Indonesia – have huge growth potential that is still largely ahead of them.
India
India is China’s obvious comparison economy, with investors sometimes coupling the two through the problematic grouping BRICS (Brazil, Russia, India, China and now South Africa) or the equally inelegant term “Chindia”. Yet the two economies have little in common besides their very large populations.
Whereas China has a high savings rate and a vast number of infrastructure projects, either recently completed or under construction, India has weak savings and a dearth of the highways, supply chains and power stations that would bring its economy to the next level. Whereas China operates a highly efficient police state, with dissent and unrest barely tolerated, India has a chaotic democracy and shambolic bureaucracy, attempting to bind the country’s 1.2 billion people.
But while such dynamics may appear to favour China, to forward-looking investors this is not necessarily a positive. A high level of savings and excess capacity in fixed assets such as road and housing illustrates just how difficult it has been to move China into a pattern of sustainable consumption-led growth.
India, on the other hand, has an economy built on resilient, bottom-up domestic demand from consumers across all sectors of society. The country’s 64-year parliamentary democracy has, meanwhile, acted as a safety valve over decades of societal change and for hundreds of divergent interest groups.
To date China’s growth has been dramatic and impressive compared with India’s less noticeable but far more sustainable trajectory. As millions of Chinese have been lifted out of poverty in China through vast economic projects, millions of Indians have done so via small businesses, often supported by innovative microcredit schemes or locally based NGOs. Where China cornered global manufacturing with cheap goods, many of them copied from the West, India exported engineers, entrepreneurs and software patents.
While any analysis of such enormous countries can only be distilled to gross simplification (and indeed China has its fair share of engineers and innovation), my bet is that India will enjoy a much longer and trouble-free path of growth, much of it in the next few years. And even if China does have an economic correction as it tries to shift to more consumption and less construction, India’s economy is largely driven by domestic demand, with a low trade-to-GDP ratio of 23.38.
Further, India operates a more flexible exchange rate, unlike China’s yuan (which is pegged to the US dollar) exacerbating much of that country’s existing inflation problems. And while India also suffers from the same debilitating effects of food and oil-price inflation, its food insecurity is of a very different nature.
Whereas China is suffering from the effects of poor weather and real shortages, much of India’s food and malnutrition problems are tragically the result of bureaucratic incompetence. Foreign investors, for instance, have so far been prevented from setting up shop in India’s retail sector, leading to the extraordinary lack of a nationwide cold storage and transport network and the spoilage of 25% of the country’s produce, versus a rich-world average of 10%. The upside to this, however, is that the problem can be easily fixed. In China, for its entire infrastructure surplus, it cannot.
It is indeed the issue of government bureaucracy that underlines the case for investment in India. China’s growth, businesspeople will often say, is because of the government. India’s growth is in spite of the government. Not that at an estimated annualised rate of 8.3%, or a five-year average of 8.4% per annum, such growth is anything to sniff at.
But when India’s “licence Raj” does complete the process of liberalisation, which began in the 1990s, the country’s economy should surge in much the same manner as China’s did when Deng Xiaoping began the transition to “market socialism” in 1978.
Indonesia
It’s a similar story in Indonesia, where economic and political reforms are continuing 13 years after the fall of President Suharto. Although Jakarta has made great strides in improving the livelihood of its population, while largely keeping true to the democratic pledge of Reformasi, it has much further to go, especially – like India – in liberalising closeted industries that are dominated by Indonesia’s 139 major state-owned companies.
Besides the benefits of further reform, Indonesia has another source of future growth. As China moves up the value chain – its GDP per capita exceeded that of Indonesia during the regional economic crisis of the late 1990s – low-cost manufacturing jobs are returning to this South-East Asian nation. Indonesia is projected to have the world's third fastest-growing workforce over the next decade, according to investment bank CLSA, with 22 million people joining it.
And unlike China, Indonesia sits at the cusp of a fixed investment cycle, not the peak of it. While fixed investment to GDP has grown to an estimated 32.5% from about 20% in 2003, it is still nowhere near Chinese levels and the government has recently announced plans to build 14 new airports. Anyone who has travelled on Indonesian trains, or commuted along Jakarta’s congested roads will know that further investment is needed.
Finally, Indonesia is leveraged to the secular boom in energy and food.
While the country faces the same inflationary pressures as China and India internally, its oil and gas reserves, its growing palm oil industry and its dominance in certain agricultural commodities bode well. Indonesia is also the world’s largest exporter of thermal coal. And while there are ethical issues with this and the cash crops that are depleting the country’s rainforest, more foreign investment is leading to better resource stewardship.
These combined factors present a massive opportunity to Australian investors who, by virtue of geography and existing trade links, have significant exposure to these two Asian giants. While the ASX’s scuttled merger with Singapore Exchange means that direct equity investments are still a laborious and expensive process, investing via Australian-listed companies and exchange traded funds are easy.
Much of that exposure is via Australian-listed non-energy resources companies, Newcrest Mining (NCM) and Rio Tinto (RIO) being prominent examples. Yet for much the same reason that I’ve cautioned against a long-term holding in the Australian resources space due to China, the same applies to resources companies operating in India and Indonesia. Because although internal resource demand is strong in both countries, international commodity prices still apply and, in the case of Indonesia, exports to drive China’s current construction cycle remain critically important.
As the attractiveness of India and Indonesia as investment destinations becomes more obvious, I expect there will be more methods of exposure for Australian investors. In the meantime, a range of energy stocks provide a good entrée into Indonesia while there are a variety of Australian companies that do significant business with India, including sandalwood harvester TFS Corporation (TFC), which I profiled last month (see Food for thought), and IT group Oakton Limited (OKN), which has an office in Hyderabad.
Other methods of exposure are through diversified construction groups like Leighton Holdings (LEI) and Transfield Services (TSE), which already have a presence on the ground. Obviously both companies have separate challenges across their businesses right now (especially Leighton) and any downturn in their mining services divisions would hit hard, but they are worth keeping on the radar for future buy signals.
The iShares MSCI BRIC (IBK) and iShares MSCI EAFE (IVE) index funds also provide diluted exposure to India among other emerging markets. The iShares MSCI Singapore (ISG) index, provides a more concentrated exposure to Indonesia, due to the Singapore Stock Exchange hosting such companies as palm oil giant Wilmar International (4.12% of ISG’s net assets) and oil rig builder Keppel Corp (6.43%) plus companies like DBS Group (10.21%) and Oversea-Chinese Banking Corporation (10.02%), which have a significant presence in Indonesia.
Here in Australia, ANZ Banking Group (ANZ), meanwhile, has a stated goal of increasing its presence in Asia, India and Indonesia in particular.
The economic growth of India and Indonesia is a long-term game and any sharemarket investment needs to be made with parallel short-term considerations of value, project and management, but it’s a theme you should at least be considering in among your asset allocation strategy. Per my earlier investment idea of gradually reallocating your exposure to China from metals and mining companies to those operating in consumer services, energy and food, I’d advocate the idea of reweighting your emerging markets exposure to a greater Indian and Indonesian allocation.
These two Asian giants are still very much exposed to risk, but expect the investment upside will be far greater because in coming decades the Indies, as much as China, will be a byword for wealth once more. |
