China is going through political-economic turmoil.
China, like the United States, is trying to trim back the power of its largest technology companies.
China however is far more forceful (see the inconvenience of using force over power here) then the US and has attacked numerous big tech companies.
The Chinese government wants technology to thrive in China, but, under strict Communist party interpretation. The result is a crash in the price of Chinese big tech shares.
The most recent attacks by the Chinese government have been aimed at Chinese tutoring stocks.
Controlling education is of vital importance to the Chinese government.
The Chinese government’s thinking is revealed in how they are altering Hong Kong’s educational system. They began by expanding the idea of national security beyond political, territorial and military security.
Hong Kong’s secretary of education told teachers that security may also encompass economic security, cultural security, social security, technological security, cyber security and ecological security.
For example in lower primary grades (aged 6 to 9) more emphasis is placed on the national flag, national anthem, law enforcement agencies, the concept of law abidingness as defined by the government and the names of the offences under the national security law.
Educators there are saying that the only option for teachers is to keep quiet and acquiesce. The alternative is to immigrate to United Kingdom or Australia. There is no middle ground accepted.
China has vast resources and beauty.
Chinese regulators do not want to lose control of the education system so they have imposed rules that change the business model of private firms teaching the schools. Beijing claims that these firms have been “hijacked by capital.”
The new regulations ban private teaching firms from making profits, raising capital or going public.
This created a bloodbath in that sector of Chinese securities. There does not appear to be a middle ground in this sector of education either. Those already in violation are not grandfathered. They must rectify the situation.
The Chinese government has recently attacked many other Chinese big tech firms including ride hailing business Didi Global Inc. and Alibaba Group Holdings’ financial arm, Ant Financial.
The Chinese investment in our Top Value ,Portfolio the iShares MSCI China ETF (NASDAQ-MCHI) has dropped 30% since mid-February.
This is why I am considering investing more in this share. Let me explain why.
The uncertainty created by these harsh regulation will increase the risk premium of Chinese shares. Investors will be wary of Chinese shares because they fear that the Chinese government might not allow a steady operating environment.
Uncertainty is the big risk in Chinese shares.
On the other hand there are a number of things we do know for certain.
China is the largest market in the world. The country has a huge, low cost labor pool that can grow into an enormous middle class. The Pandora’s box of materialism has been opened and the population have learned to expect rapid material improvements.
Historian Yuval Noah Harari, wrote in his book, Sapiens: A Brief History of Humankind : We do not become satisfied by leading a peaceful and prosperous existence. Rather, we become satisfied when reality matches our expectations. The bad news is that as conditions improve, expectations balloon.”
This means that as much as the Chinese government wants to totally control the narrative, they have to content with the already ballooned expectations of an existing, well educated population that needs a global economy to grow.
Investing more in China may be a speculation, but the certainties above suggest that there is a chance for a huge recovery as the government versus business tensions ease.
Value is one more huge positive factor in the Chinese investment speculation calculation.
At the end of June, the US MSCI was selling for 4.83 times price to book, a 29.7 P/E ratio and an average dividend of 1.33.
The Chinese MSCI was selling at only 2.28 times price to book, P/E ratio of 18.7 and and average dividend of 1.36.
The correction in the market, mean that the Chinese value will be even better this month. The end of July numbers from Keppler Asset Management below that I recently passed to Purposeful Investing (PI) shows the value growth. (See how to subscribe below).
At the end of July 2021, the US MSCI was selling for 4.90 times price to book, a 29.1 P/E ratio and an average dividend of 1.32.
The Chinese MSCI was selling at 1.98 times price to book, P/E ratio of 15.3 and and average dividend of 1.60.
China has to find a platform to merge its old with its new.
What we can be pretty sure of is that the Chinese government cannot return to the old Maoist “Chicken in Every Pot” story. The political-economic evolution is likely to be more progressive.
Now let’s look at the platform that let’s me speculate in China.
My portfolio consists of ETFs that represent the MSCI of Top Value countries. There are nine top value developed markets and eleven top value emerging markets. iShares MSCI China ETF (that has tanked this year) is one of these ETFs.
I invest 70% in the developed markets and 30% in the emerging markets, but treat China as a developed market. This means that about 3.5% of my total equity portfolio is in China.
Normally I would not bother making an adjustment. As long as a market remains a top value market, I hold it. This means I make very few changes in the portfolio.
At this time I would think of bringing my percentage of Chinese shares up to a 5% balance in my portfolio and good long term speculation.
I have no way to know how long it will take for political economic tensions to sort themselves out and beyond bragging rights (If Chinese shares recover strongly and quickly) I do not care. China is a huge part of a global economy that is the only solution to the big challenges humanity faces.
Adding a bit more investment into this huge resource when the price is depressed makes a sensible speculation to me now.
Stress Less Investing
The stock market has always been the best place of places to protect and increase wealth over the long haul. Yet it’s also been the worst place to lose money, a lot of it, quickly.
There are only three reasons why we should invest. We invest for income. We invest to resell our investments for more than we had invested. We invest to make our world a better place.
The goal of investing should be to stabilize our security, bring feelings of comfort and the elimination of stress!
We should not invest in social networked protests that guarantee loss. This is like burning our houses down in protest.
If we want to change the world, we should invest in good equities that bring profit and use the extra wealth to create something beneficial for mankind.
We should not invest for fun, excitement or to get rich quickly. We should not divest in a panic due to market corrections.
This is why my core stock portfolio consists of 16 shares and this position has hardly changed in five years. During this time we have been steadily accumulating the same Top Value ETFs and have traded only a few times.
The study below shows how a value based model portfolio that dates back to 1969 has outperformed almost every stock market in the world.
The US market has not been even close to the top performer over the long term.
The DQYDJ Dow Jones Industrial Calculator (1) shows that an investment in the Dow Jones (with dividends reinvested) has risen at an average of 10.74% over the last 50 (51 actually) years.
That’s 10.74% is pretty good, but an analysis of 51 years performance of all the developed stock markets shows that (using country indices as hypothetical investments) investing in the top value (not top performing) markets would have returned 12.5%.
The chart below shows the analysis.
An annual return of 12.5% compared to the 10.74% US return is a 1.76% per annum difference. This may not seem like much,
In the long term the difference is huge. Calculations from the investor.gov site (2) shows that $10,000 invested at the 10.74% compound rate turns $10,000 into $1,817,734.62 in 51 years.
Wow, that sounds pretty good until you look at the results of the 12.5% rates. $10,000 grows to $4,062,362.22!
Investing in the top value (not the top return) markets earned $2,244,627.60 EXTRA!
$4,062, 362.22 means you would have $2,244,627.60 MORE by investing in good value markets versus $1,817,734.62 earned investing in the US market. That almost 125% more money!
Here are the best value developed markets at this time (as of end of March 2021).
No matter how we look at it, over time, value investing always wins!
Our portfolio is built around a strategy that’s taught in my Purposeful Investing Course (Pi). I call these shares my Pifolio. The course shows how to use the value analysis of Keppler Asset Management to create a portfolio of ETFs that cover undervalued stock markets. I have combined my 50 years of investing experience with the study of the mathematical market value analysis of Michael Keppler, CEO of Keppler Asset Management.
In my opinion, Keppler is one of the best market statisticians in the world. Numerous very large fund managers use his analysis to manage billions of dollars in funds. However because Keppler’s roots are in Germany (though he lives and operates from New York) all of his funds are registered for the European Union citizens, Americans cannot normally access his data.
I was lucky to have crossed paths with Michael over 25 years ago, so I am one of the few Americans who receive this data so I can share it with Pi subscribers.
The Pifolio analysis begins with Keppler’s research that continually monitors 46 stock markets and compares their value based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return. Keppler looks at these numbers and takes market’s history into account.
Michael Kepler CEO Keppler Asset Management.
Michael’s analysis is rational, mathematical and does not worry about short term ups and downs. Keppler’s strategy is to diversify into an equally weighted portfolio of the MSCI Indices of each good value (BUY) markets.
This is an easy, simple and effective approach to zeroing in on value. Little time, management or guesswork is required. You are investing in a diversified portfolio of good value indices.
A BUY rating for an index does NOT imply that any one stock in that country is an attractive investment. This eliminates the need for hours of research aimed at picking specific shares. It is not appropriate or enough to instruct a stockbroker to simply select stocks in the BUY rated countries. Investing in the index is like investing in all the shares in the index. You save time and gain incredible diversification because all you have to do is invest in the ETF to gain the profit potential of the entire market.
To achieve this goal of diversification the Pifolio consists of Country Index ETFs.
Country Index ETFs are similar to an index mutual fund but are shares normally traded on a major stock exchange that track an index of shares in a specific country. ETFs do not try to beat the index they represent. The management is passive and tries to emulate the performance of the index.
A country ETF provides diversification into a basket of equities in the country covered. The expense ratios for most ETFs are lower than those of the average mutual fund so they provide diversification and cost efficiency.
Here is the Pifolio I personally held at the beginning of 2021. There have been no changes since.
70% is diversified into Keppler’s good value (BUY rated) developed markets: Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.
30% of the Pifolio is invested in Keppler’s good value (BUY rated) emerging markets: China, Brazil, Chile, Colombia, South Korea, Malaysia and Taiwan.
There is one trick Pi subscribers learn about China which is different from the rest of the funds.
iShares Country ETFs make it easy to invest in each of the MSCI indices of the good value BUY markets.
For example, the iShares MSCI Germany (symbol EWG) is a Country Index ETF that tracks the investment results of the MSCI Germany Index. The fund invests at least 80% of its assets in the securities of its underlying index that primarily consists of all the large-and mid-capitalization companies traded on the Frankfurt Stock Exchange.
iShares is owned by Black Rock, Inc. the world’s largest asset manager with over $4 trillion in assets under management.
There is an iShares country ETF for every market in our Pifolio.
This year I celebrate my 53rd anniversary of writing about global investing. Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades. This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.
How you can create your own good value strategy.
Stock and currency markets are cyclical. These cycles create extra profit for value investors who invest when everyone else has the markets wrong. One special part of your course looks at how to spot value from cycles. Stocks rise from the cycle of war, productivity and demographics. Cycles create recurring profits. Economies and stock markets cycle up and down around every 15 to 20 years as shown in this graph.
The effect of war cycles on the US Stock Market since 1906.
Bull and bear cycles are based on cycles of human interaction, war, technology and productivity. Economic downturns can create war.
The chart above shows the war – stock market cycle. Military struggles (like the Civil War, WWI, WWII and the Cold War: WW III) super charge inventiveness that creates new forms of productivity…the steam engine, the internal combustion engine, production line processes, jet engines, TV, farming techniques, plastics, telephone, computer and lastly during the Cold War, the internet. The military technology shifts to domestic use. A boom is created that leads to excess. Excess leads to correction. Correction creates an economic downturn and again to war.
Save $124.50 If You Act Now
Subscribe to the first year of The Personal investing Course (Pi). The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking that down to $174.50 in this special offer. Plus I am reducing annual renewals from $299 to only $99.
I would like to send you, on a no risk basis, a 130 page basic training course that teaches the good value strategy I use. I call this strategy Purposeful Investing (PI). You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.
You get this course when you enroll in our Purposeful Investing program (Pi) with a triple guarantee.
Enroll in Pi. Get the 130 page basic training, a 46 stock market value report, access to all the updates I have sent in the past five years right away, plus numerous updates over the next year.
#1: I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy diversified investing.
#2: I guarantee to send you monthly updates that are based on a study of every share in 46 stock markets around the world. These updates will show the values, the earnings of all these markets and categorize each market as Top Value (buy), Neutral Value (hold) or Poor Value (sell)
#3: If you are not totally happy, simply let me know. I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.:
You have nothing to lose except the fear. You gain the ultimate form of financial security as you reduce risk and increase profit potential.
When you subscribe to Pi, you immediately receive a 120 page basic training course that teaches the Pi Strategy. You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.
You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last five years so you can back track if you desire. Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.
Subscribe to a Pi annual subscription for $174.50 and receive all the above.
Your subscription auto renewal will only be $99 a year from now, if you renew, but you can cancel at any time.