Mark Mobius Likes Chinese Equities

Mark Mobius recently said he continues to like Chinese equities, and even if the renminbi goes up some, he doesn't expect it to shoot up quickly, so it shouldn't have a negative impact on Chinese stocks.

Part of the reason is the $800 billion the Chinese government holds in US Treasuries.

"A sharp movement in the renminbi's value in either direction could potentially hurt either party, foreign or Chinese. Domestically, I think the Chinese authorities realise that," Mobius says.

He doesn't think this will be allowed to happen, so maintains his bullish outlook for Chinese stocks.

China Could Double GDP in Next Decade

Some China economic watchers are projecting China's economy to reach $7.5 trillion over the next decade, which would effectively double the size of the middle kingdom in that short period of time.

If this estimate is accurate, China's growth would be larger in GDP than the United States, combined with China's three BRIC counterparts.

There can be no doubt that China will be the economic story of the 21st century, and even with their measures to slow down their urban property markets, they will still grow at a solid pace, one that is much more healthy than it was before.

Now what is waited for is for China to successfully navigate from being primarily an export economy to one balanced with domestic growth and demand as well.

Assuming they do it correctly, they will be poised to extraordinary growth in the years ahead, which will continue to dominate the global economic growth other countries are increasingly relying on.

BRICs Drive Export Demand

BRIC Driving Export Demand

With the U.S. consumers expected to hold back on spending for some time, the world continually is looking for the rebound from the BRIC countries in order to generate increasing demand for exports, which will help their domestic economies.

According to a recently released Goldman Sachs report, they assert the BRICs will account for around 50 percent of export demand as their domestic consumption grows; presumably from their emerging middle classes.

The report reiterated what we already know here, that China would perform particularly strong, more than likely accounting for 30% of the world’s consumption growth next year, which is more than the combined growth of the G3 — United States, Japan and Germany — as they slowly move out of recession.

Goldman Sachs, which dubbed the term BRIC in 2001, said the emergence of the BRIC consumer is an important development that will create demand and hence support the export markets of developed economies, and I would add that this will be going on for some time to come.

The report added that consumption in the BRIC economies would be supported by a shift in spending power from the richest countries towards a growing middle-income bloc in the emerging markets. Consumption would likely receive a further increase when the fast economic growth in China and India finally reaches their rural populations.

As these domestic economies emerge, the type of products they consume is also likely to slowly move away from low-value-added products, like agricultural goods, to those at the higher end, such as cars, office and telecom equipment.

The Goldman economists estimate that Chinese retail sales, a key indicator of consumption, rose 17.6% in the year ended June, with food and beverages products posting the biggest gains, although it remains to be seen whether this is a real rebound once their stimulus money runs it course and potential inflation arises. Retail sales in Brazil, while lower than in 2008, remained well supported and would likely increase in the third quarter as demand for commodities increase.

India does not measure retail sales, but individual components, such as vehicle sales are used to measure the consumer for consumption demand. Goldman said auto sales had increased in a big way, and were now selling quicker than before the crisis.

Russia, after years of strong growth, was the only BRIC country where retail sales growth had suffered, and is slowly losing the luster connected to being included with BRIC at this time. Sales in the year to June fell 6.72% on the back of a plunge in non-food products.

While most agree the BRIC countries will have an increasingly important role to play in the worldwide economy, not all are sure they can drive demand, but I think that's ludicrous based on China alone.

BRIC Driving Export Demand

Jim Rogers TV: Jim Rogers Talking on China and Economic Future

Talking on China: stocks, investment, stimulus - infrastructure key at this time




To see other excellent Jim Rogers videos go here

BRIC Economies Slowing but will Still Remain Healthy

While there's no doubt every country in the world is being hurt by the economic crisis, BRIC countries will continue to grow, albeit at a significantly slower pace than in the recent past. The CIS states, as far as emerging markets go, will be hit the worst, according to the International Monetary Fund.

For BRIC countries, Russia's growth will drop to about 3.5 percent, a decline of 2.6 percent; Brazil will fall by close to 2 percent; and India will fall by over 3 percent in GDP. China will also plunge by about 3 percent, but will still grow at a healthy rate of over 8 percent in 2009.

One positive development that is helping the BRIC countries is a growing middle class, which has created domestic demand for products and services, which in turn is helping bolster their economies, even as their export markets dry up.

How is India Faring Among the BRIC Countries?

For now at least, it looks like India will outperform other BRIC countries, primarily because it relies less on imports than the rest, although Brazil is strong in that sense too.

Russia has of course been pummeled by the worldwide economic conditions, as its markets have lost 65 percent of their equity since July. China and Brazil or close, with China losing 40 percent and Brazil 38 percent of market value. Brazil has been hit hard because of their reliance on commodities.

India on the other hand, has only dropped by 27 percent since July, a testament to their focus on domestic consumption rather than exports.

"India imports about 85% of its oil requirements and hence, the drop in prices augurs well for the trade and current account deficits. On the other hand, we are one of the few economies driven by domestic consumption and investment , unlike other regional economies which are dependent on exports. This makes us relatively insulated to global slowdown," Sukumar Rajah, chief investment officer (Equity) of Franklin Templeton Investments India said.

Another key factor in retaining a fairly strong position in a difficult climate has been the fall in commodity and energy prices, which has eased inflation in the country. Earnings have also been stronger the expected, so a more positive attitude has been maintained in spite of the challenges.

India is hoping investors and financial institutions will take note of this, and they will have an interest in continuing to invest in the country.

The downside of course is when demand from emerging markets surges again, and prices of commodities go up, making the more insular business climate of India not as robust as its competitors. But for now, as far as BRIC countries and a number of their Asian neighbors, India has a much stronger economic position to work with.