A couple notes of caution on those seeking to diversity in their 401(k) through investment in emerging markets. This usually means BRICs and sometimes China-focused ETFs or mutual funds.
As far as stocks go, last week we featured the mess that is Qihoo 360, a China-based internet search company with issues of fraud and dodgy accounting.
Here is more proof that investing in China is not for the faint of heart or shallow of pocket. From Alex Dalmady’s blog:
In a move that should surprise no one, Canadian/Chinese forestry company Sino-Forest filed for bankruptcy in Canada yesterday. The timing of the filing shouldn’t be a surprise either, since the company was due to deliver its 2011 audited financial statements and also unsurprisingly couldn’t find an auditing firm willing to sign off on them.
Thus, the saga which began ten months ago when short-seller/analyst Carson Block put out a report stating that the company was a fraud, is winding down.
In the interim, we’ve seen a famed hedge fund manager (John Paulson) humbled, a kiwi billionaire (Richard Chandler) lose a $100 million+ bet and a committee of Sino-Forest’s own directors spend $50 million to investigate itself, concluding in a nutshell that the trees exist, but they’re not sure if the company owns them in any way.
[ Go ahead and click through, there’s more – Hat tip to IKN }
I used to hold some shares of the Matthews China Fund (MCHFX) some years back, but dropped them on this type of concern. Some of its holdings are straight-up solid companies, based in Hong Kong, and with huge moats around their business (China Mobile, for example, has 600 million customers, a market capitalization of $221B, and sports a dividend of 3.70%). Still and yet, still and yet…
In retrospect, dumping this fund was a neutral move. MCHFX has performed about as well as the Dow and S&P indexes over the last five years. Over the last ten, its growth has been phenomenal. But so what, as with anything, the right time to invest was ten years ago.
China bulls liken what China is going through today as with the US in the latter part of the 19th century, all go-go business, industrialization, manifest destiny and all that. The general thought is that stories like Sino-Forest are all signs of growing pains, transition from a socialist workers’ paradise to a capitalistic consumer society. Except, the one key difference between the United States and China, is that in China there aren’t that many resources left to consume. The United States went through its growth period sustained by ample water resources and the enormously productive farmland of the Mississippi River basin. China is having to make do with depleted acquifers, dried-up rivers, eroding topsoil and declining farmland production.
This brings up the second highlighted article of the day:
China Economic Review – “Parting the Waters – China’s Water Crisis Threatens Growth and Stability”
…China’s per capita water availability is only about one-quarter of the world’s average, and what resources it has are distributed unevenly. Northern China supports about half of the country’s population and most of its agriculture, yet it has only about 20% of its water, said Ma Jun, director of China’s Institute of Public and Environmental Affairs.
Droughts in the north and northwest already constrain agricultural and industrial output, and excessive water withdrawals and unsustainable farming practices are encouraging the creep of desertification. Rampant water pollution has exacerbated these shortages, making usable water scarce even in the water-rich south, Ma said….
Water is boring stuff, I know, I’ve been told. Turn the spigot, and it just comes out of the faucet. Boring or not, it’s an essential of life, industry and economic growth. Will China continue rocketing ahead with phenomenal growth rates, or eventually crash and burn? I think a boring somewhere in the middle. Above all, it pays to stay informed and skeptical.
More reading on China economics and resources below.
The Economist – “The End of Cheap China“ A look at the challenges of low-cost manufacturing in China.
Of Two Minds (Charles Hugh Smith), dateline November 2011 – “Some Things You Should Know About China”
Of Two Minds (Charles Hugh Smith), dateline June 2005 – “China: An Interim Report: Its Economy, Ecology and Future”
The two links from Of Two Minds are longish reads, and have other China-related articles referenced in the text. Get you a cup or two of coffee, it takes a solid hour of surfing to get through it all… if you’re so inclined, that is.
Some Links to Round Out Last Week
The Personal Finance web space has been fairly afire with the wonderful prospects for P2P lending. Prosper, Lending Club. Here’s a dissenting bearish voice from Bichon Frise at PFBlogWatchdog “Peer to Peer Lending Is a Bad Idea for Investing”
Darwin’s Money one more time takes a look at the ridiculous bashing that Apple is getting in the news. Now, it’s for working too hard to bring your nifty little gadgets that improve your life so that…. well, so that you don’t have to work so hard. I wonder if the pinheads at the NYT who penned the article have iPhones.
Expat Mama is grateful for her Nanny. That’s one of the great benefits of living overseas in a developing country (we used to say the Third World, but now it’s so declasse’). Having affordable domestic help makes life all that much better for everyone involved. The person has gainful employment, and you have freshly ironed shirts whenever.
I’m going to turn 50 this year. Thad @ ThadThoughts has some reflections on this milestone. “Transitions – Getting Old”
Kevin @ Invest It Wisely celebrates two years of blogging with a great giveaway. An iPad 3 is a nifty enticement to go over and participate, is it not?
That’s it for this week. If you liked this article, please don’t forget to add 101 Centavos to your RSS feeds or Twitter. Even better, sign up for email, it’s easier that way. Top right hand corner.