Tue 5 Dec 2006
China is the New Dot Com - It’s Too Hot!
Posted by RichSlick under Financial Safety, Watch Out
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One of my favorite ETFs is FXI which is an iShares ETF of China’s Top 25 companies. I’ve seen this ETF grow from the mid 60’s to nearly 100 today in less than six months! But now FXI and China are starting to smell too much like the dot com mania of the 90s. Almost everyone I talk to has some sort of interest in investing in China now or they’re asking me how to get a piece of the action. Many of my friends and business associates are flying to China to invest or sell something.
I had a discussion with a college professor who frequently visits Asia and he mentioned that although China has 1 trillion dollar in reserves they have around 820 billion in non-performing loans and debt. Money is pouring into China from everywhere and that money isn’t being properly managed. People seem to also forget that China is a totalitarian country which may seize and nationalize whatever it wants whenever it wants.
FXI and China may have some more upside or they may come crashing down and I don’t know which way it’ll go but I do know that there is too much mania about it for now. Good luck and happy hunting.
December 6th, 2006 at 5:12 pm
Of course China is like the .COM bubble…in a way it is….at least in so far as in investment terms are conserned. But from the perspective of China itself….they are in fact collecting the manufacturing and knowledge it needs to be the world leaders….because it doesn’t really matter if things are paid for in dollars or clamshells….if you have “something” that people want….they will pay you in whatever the medium of exchange of the moment is.
So in finance terms….we may be left holding the bag money-wise….while they basically get what they want….the infrastructure, knowledge and leverage over the rest of the world. (even if we end up paying them in slave labor or chunks of road-asphalt…..)
The .DOM era was a bit different because not much of value was ever really created or built…though I guess some people did end up very wealthy….so there was at least a shift in wealth of sorts.
December 7th, 2006 at 12:00 pm
Good observations. I was primarily concerned with the investment aspect in China. There was a famous analyst that said he knew it was time to sell the market during the dot com era because he had heard that movie stars were all bragging about how much money they were making in the stock market.
During the housing bubble, everybody and their brother was trying to score big profits flipping properties. TV shows were dedicated to watching people do it and a couple of years later we are about to see a housing slump like never before.
Today, I hear people (that normally don’t invest in anything) start talking about investing in China - it’s a warning sign. Personally, I think China is probably good for another two years (until the Olympics) then investors are going to start questioning and demanding some returns.
As bad as the US has a problem with Social Security, Medicaid, Medicare, etc. China has it much worse with such a large aging population that it may prove too much. Additionally, China’s one child policy has left the population top male heavy and that will create different kinds of problems as well.