International investments in good value change with time. Yesterday’s message looked at strength of international investments in Scandinavian currencies that comes from the hard working and prudent nature of the people themselves. As above so below! The nature of the northerners creates value.
This is true of the potential of international investments in China as well. The Chinese are family oriented, hard working and thrifty. Plus there are about a billion of them to absorb off the farms into more productive endeavors.
Yet, if you have been reading my messages about international; investments over the last weeks you know I have taken profits liquidated all my equity mutual funds, including India and China.
This is not because I believe that the great growth will stop but because good value is currently not there. The Chinese market has bubbled too high.
I look for international investments of good value.
Even the Chinese government has indicated that international investments in the Chinese stock market has made it bubbly. This set off a steep drop, including a one day drop of 6.5%. This does not mean investors should necessarily try to time the market.
At times like this there are three things one can do with our international investments.
International Investments Approach #1:
Invest for the long haul, trade in value or time the market. Whichever choice is used, it should be adjusted to personal circumstances.
One can place their international investments in the big picture and just hold through thick and thin. Bottom line shares have for the past 100 years or so outperformed all types of other investments. They are likely to continue doing so, even in China, because even the emerging market governments have learned to use deficit financing to stimulate their economies.
Back in the late 60s and early 70s international investing was easy. The US government was financing its “guns and butter” programs with deficit financing. In other words, they just borrowed all the money they spent beyond their revenues. Or even worse they just printed more money.
All one had to do was invest against the US dollar in currencies of thrifty people. “As above, so below.” Nations populated by thrifty people, like Germany, Switzerland and Japan had thrifty governments who did not spend and borrow. The yen, franc and mark appreciated mightily versus the greenback.
Then regrettably these other big nations caught on to deficit financing. Japanese and German national debt began to grow as well. Switzerland by default had to keep its currency in line with its largest trading partner, Germany.
Deficit financing creates inflation. Inflation forces investors to invest in something other than debt. Equities, real estate and commodities are the top three naturals, though collectibles usually do best for those who know what they are doing.
Now a part of China’s stock market bubble is being created by deficit financing at the Bank of China. Here is how this works. The Chinese want to keep the yuan weak versus the US dollar. They need a strong dollar to support cheap Chinese exports to the US. They need these exports to support China’s shift to capitalism. This is essential. The Chinese government has stampeded a thundering herd of 2 billion people into the corridor of materialism. There is no turning back. Any Chinese politician who hinders this will be trampled quickly!
Since the US dollar is being devalued through deficit financing, the Chinese must do the same. They increase liquidity to create yuan to buy US dollars. This buying of dollars for yuan bolsters the dollar versus yuan.
However both currencies lose purchasing power. That’s inflation, so investors buy Chinese stocks and real estate to protect their purchasing power. In other words US inflationary policy is creating the Chinese stock bubble as well.
A recent article I read said: “As we export our inflation to Asia, the Chinese stock market bubble may be one of the few things in Asia that was actually ‘Made in the U.S.A.’”
Yet not all growth in China is caused by inflation. More and more Chinese are working more productively and earnings and saving more. This creates real added value to the Chinese stock market. This is such a huge trend that those who buy and hold are most likely to do well. The risk in this comes when you buy at a high point. Corrections can weaken your portfolio for extended periods.
International Investments Approach #2:
Another approach is to use a value analysis system such as the two we track, Michael Keppler’s Top Value Analysis and Jyske Bank’s VAMOS program.
This is the approach I use, so when China and India both lost their top value I took my profits and ran. I’m glad I did now as the 6.5% drop came soon after. A run on these two markets could create panic that reverberates all over the world.
International Investments Approach #3:
If you use the third approach, are a market timer and make money, then you know more than I do. This is the most time consuming approach that only works for a few.
I like the good value approach for my international investments because it seems to do well with either bonds or shares. In the five updated 2007 multi currency portfolios we track, our equity funds are doing well. The green portfolio (all shares) is up 63.04% in three months. Yet our dollar neutral portfolio (85% bonds) is also rising nicely, up 13.62% in three months. You can learn how to track and learn from these portfolios at https://www.garyascott.com/catalog/bldh/
Any of these three approaches should be modified to react to your own personal affairs. In other words if you are a value investor, you only invest in a new value when you see it as better for you then the old values you hold. This was the main reason for Merri’s and my move out of equities. We see greater value in Ecuador real estate now….for us. See why in the next portion of this message at https://www.garyascott.com/international_investments/227.html
Feb. 20 – 25, Tues.-Sun. Import-Export Expedition.
Mar. 9 – 15, Fri.-Thurs. Ecuador Spanish lessons. Expanded Super Thinking + Spanish.
Mar. 16 -18, Fri.-Sun. International Business and Investing Made EZ.
Mar. 19 – 21, Mon.-Wed. Andes Extension & Real Estate Tour.
March 23 – 25, Fri. –Sun. Shamanic Mingo Tour.
You can enroll for our March Andean 4 course adventure at www.garyascott.com/catalog/4course/