Welcome the Chinese Yuan as the new world reserve currency
Belarus added the Chinese Yuan as a reserve currency in addition to the USD, RR and EUR.
I want to congratulate the National Bank of Belarus for having the foresightedness to make this important move!
See news story here.
Chinese stocks, as measured by FXI, are the best performers in any emerging market portfolio. I believe people are still underestimating the impact China will have on the world economy in the future years.
Yes, they will talk about the Chinese bubble. But is it a bubble? If you have seen my previous posts (see the main theory here), where I argue that in a free market economy, the overall stock market cap of a country is proportional to it's total population (much like the GDP), do you know that if China was a developed country today, FXI would be trading at USD 4000? That is twenty times from the 190 dollars it is trading today in New York.
Of course, China is not a developed country yet-so it will be a few decades before the market goes 20x, but the point is-this is the investing opportunity of a lifetime. Add the fact that most of the Chinese big companies are majority owned by the Government, a Government which has $1.4 Trillion in reserves, and is adding reserves at $200-300B per year, and you know why I believe this is the best opportunity if you consider risk/reward-the Chinese Government automatically puts a put option on the market if things overheat, etc and the market collapses. And the fact that prices of shares in FXI are trading at a 30-40% discount to what the Chinese are paying for the same shares in Shanghai, adds another margin of of safety for your portfolio of China stocks.
Back to my theory now, and why I think we are nowhere near a crash in China. I did some research in what happened in Japan in the late eighties-when the market went completely nuts and then crashed in 1990-91 by 75%. You see, the market cap of Japan at one time overtook the market cap of United States, which is a problem because Japan is only half the population of the United States, and unless you believe that an average Japanese is twice as productive as an American, that can't hold on for too long. That is why we can say that the Japanese market entered bubble territory, and crashed, and stayed low.
You can think about my theory as the idea of buying a well diversified company operating in many different businesses (the company being the economy of a whole country), and the argument is that it is simply the number of human being in the company which will determine the total value of this company. A country can be thought of as a ultra mega GE or Tyco. This is the human capital of a country-which is why I call my theory the human capital theory of financial markets, and that is what will determine how much the country's stock market will be worth, in a free market economy.
The message is clear-stay long China. The Yuan is the currency of the future-flight to safety will be called flight to Chinese stocks in the years to come. We kinda saw that in the last few months-but the trend should only strengthen. Together with the Indian Rupee, the Chinese Yuan will be called the safest currency of the world in the future. I even dared to coined a name for the merged Chinese Indian currency-the Ruan. See post here...:-)
Sanjay
I want to congratulate the National Bank of Belarus for having the foresightedness to make this important move!
See news story here.
Chinese stocks, as measured by FXI, are the best performers in any emerging market portfolio. I believe people are still underestimating the impact China will have on the world economy in the future years.
Yes, they will talk about the Chinese bubble. But is it a bubble? If you have seen my previous posts (see the main theory here), where I argue that in a free market economy, the overall stock market cap of a country is proportional to it's total population (much like the GDP), do you know that if China was a developed country today, FXI would be trading at USD 4000? That is twenty times from the 190 dollars it is trading today in New York.
Of course, China is not a developed country yet-so it will be a few decades before the market goes 20x, but the point is-this is the investing opportunity of a lifetime. Add the fact that most of the Chinese big companies are majority owned by the Government, a Government which has $1.4 Trillion in reserves, and is adding reserves at $200-300B per year, and you know why I believe this is the best opportunity if you consider risk/reward-the Chinese Government automatically puts a put option on the market if things overheat, etc and the market collapses. And the fact that prices of shares in FXI are trading at a 30-40% discount to what the Chinese are paying for the same shares in Shanghai, adds another margin of of safety for your portfolio of China stocks.
Back to my theory now, and why I think we are nowhere near a crash in China. I did some research in what happened in Japan in the late eighties-when the market went completely nuts and then crashed in 1990-91 by 75%. You see, the market cap of Japan at one time overtook the market cap of United States, which is a problem because Japan is only half the population of the United States, and unless you believe that an average Japanese is twice as productive as an American, that can't hold on for too long. That is why we can say that the Japanese market entered bubble territory, and crashed, and stayed low.
You can think about my theory as the idea of buying a well diversified company operating in many different businesses (the company being the economy of a whole country), and the argument is that it is simply the number of human being in the company which will determine the total value of this company. A country can be thought of as a ultra mega GE or Tyco. This is the human capital of a country-which is why I call my theory the human capital theory of financial markets, and that is what will determine how much the country's stock market will be worth, in a free market economy.
The message is clear-stay long China. The Yuan is the currency of the future-flight to safety will be called flight to Chinese stocks in the years to come. We kinda saw that in the last few months-but the trend should only strengthen. Together with the Indian Rupee, the Chinese Yuan will be called the safest currency of the world in the future. I even dared to coined a name for the merged Chinese Indian currency-the Ruan. See post here...:-)
Sanjay
posted by Sanjay "John" Gandhi at 6:04 AM
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