The China file

A couple of items in the news medium recently caught my attention, both relating to a favorite topic of mine: emerging markets. I have long argued (1,2)that most long-term investors are poorly served by the traditionalist advisors on the emerging market side, suggesting that portfolio weightings of 5%, or perhaps 10% are appropriate.

China recently announced blow-out numbers, with second quarter GDP expoloding by 11.3%, compared to 10.3% in the first quarter, and an official government target of 8%. Here are some figures for the first half of 2006 for China, together with the goverment target (target is bracketed):

Real GDP growth: 10.3% (8% target)
Investment in fixed assets: 31.3% (18%)
Money supply growth: 17.4% (16%)
Trade: 23.0% (15%)
Inflation: 1.3% (less than 3%)

India too, grew at 9.3% for the first quarter, nearly tracking the dragon nation.

China is forecast to continue growing in the medium term in the 7-10% range, while India is forecast also for growth in the 6-9% range.

Finally, a recent report by Scotia Bank economists Warren Justin and Mary Webb indicated that, based on purchasing power parity, newly industrialized Asian nations now account for 30% of global GDP. Even accounting for trade in U.S. dollars, newly industrialized Asian nations account for 12% of global GDP.

And your advisor is telling you to put only 5% or 10% of your portfolio into emerging nations? And you say you're a long-term investor? Really? Then why are you underweighting your portfolio so badly??


JW

The Confused Capitalist

Global Energy Demand and China

An interesting story in the New York Times magazine last weekend, regarding the growth in China of the car culture. It points to a growth like that in the early car years of America:

• Total miles of highway, now some 23,000, more than doubling what existed just six years ago;
• Year over year growth of car sales of 54%;
• Passenger cars on the road, now 20 million, compared to about 6 million in 2000;
• Government announced target of 56,000 miles of freeway by 2035 (the US has 46,000 miles of interstate highways);
• and by 2030 carbon dioxide emissions are projected to exceed those of the US.

Anyone who thinks that the demand for global fossil fuels will abate anytime soon, should also consider that the average American uses about 25 barrels of oil annually, versus 1.8 barrels in China and 0.8 in India. Those latter two figures are obviously going to move upwards at a rapid rate, considering those countries recent growth rates in the 7-10% range annually and the apparent embedding of the car culture in China particularly.

Which of course provides a long tailwind to investing in the fossil fuel industry.



JW

The Confused Capitalist