By Karim Rahemtulla
Investors have been in love with the China story and Chinese stocks for more than a decade.
And, there’s a lot to like if you know what you’re doing and where to look. But there’s an even greater opportunity when you look in the places no one else is looking…except for the Chinese.
China faces a labour crisis. It’s not what you think.
They have lots of workers. Some are very skilled, others highly educated. But the ones working in the factories by the millions possess little but what they can do with their hands.
Their wages are not enough to buy the very purses they sew or bicycles they assemble. That is changing, slowly. The change is becoming painful for Chinese factories.
You see, China does not have factories that have huge margins for profit.
The country has succeeded by being the lowest-cost producer in the world, selling its wares at razor-thin margins to quash any competition.
The resulting success has made China a global powerhouse…but it has also resulted in an unintended consequence: inflation.
China is one of the few emerging countries that I have been to where the government offers few subsidies. Take gasoline, for example. It costs over US$5 per gallon for gas today in China.
That’s more than the U.S., and it’s a lot more than India, which subsidizes fuel.
The price for everything is going up for the local population, so now they’re demanding higher wages.
And they’re getting higher wages, which means even lower profits for factories already stressed by a global economic contraction that has end customers unwilling to pay more.
There is a fix. And that fix is going to make you money. It’s where the Chinese are putting their money — lots of it.
Vietnam -The Opportunity Behind a Massive Disconnect
Between 1991 and 1999, the value of Chinese investments in Vietnam, its neighbour to the south, was about US$120 million.
By 2010, that number had ballooned to more than US$3 billion. And if you add the amount pumped in through Hong Kong, the amount more than quadruples to close to $15 billion in projects.
The influx of cash in the early mid-2000s sent Vietnamese stocks soaring.
But as is often the case in emerging markets, when the spending bubble burst as a result of the accompanying high inflation, the market crashed to a tune of more than 70% from its highs to its lows reached early last year.
I was in Vietnam last year, on the ground, doing research in Ho Chi Minh City (formerly Saigon) and Hanoi. It was hopping! I was puzzled. This was an opportunity that could not be passed up.
There was a massive disconnect, and there still is, between what was happening on the ground and what was reflected in stock prices.
Coupled with the fact that China has no choice but to expand production using lower-cost Vietnamese workers, this was an unparalleled emerging market opportunity.
Vietnam is a vibrant country. The majority of the population is under age 45. They take pride in education and putting in a hard day’s work.
The norm there is to work all day and then go to school in the evening for technical courses. The people want to get ahead, and it shows in the buzz on the streets.
The Vietnamese market will recover. Already since my trip the market has performed better than most in the world, up over 20%. It has more to go — much more.
In my book Where in the World Should I Invest? An Insider’s Guide to Making Money Around the Globe, I talk much more about specific investments that all investors, regardless of location, can make in Vietnam.
Up-and-coming markets require a lot of research at the ground level. I’ve been doing that for the better part of 20 years now, and it’s not all rosy.
There are places I would not touch 20 years ago and still won’t invest in today.
Some markets will be emerging forever.
But, there’s a money migration afoot and that cash is heading to Asia, Africa, Latin America and the Middle East.
In some countries growth is five times that of the U.S. or Europe. Growth like that will translate into profits for your portfolio if you know where to look!
Photo Credit: Terry Whittaker