One Great Investment Idea Out Of China
The Dynamic Wealth Report
July 22, 2009
Does China Really Matter?
You can’t look around these days without seeing news about China. Their
presence on the global stage is growing by the day. While some investors
(the stupid ones) are content to ignore the dragon, I’m focused on
profiting from it.
China’s influence far exceeds the shores of their own giant country. While their political influence might be flawed, their economic
influence is far reaching and impactful.
But really, how important is China?
That’s the question I asked myself, and you should too. Should we
Americans really care about a far off country’s growing political and
economic power? Should we be concerned over a threat to our global
economic dominance?
To answer this question, I started looking more closely at China’s
influence. What I discovered will absolutely stun you.
China has more than 1.3 billion people within their borders… and that
number is growing rapidly. A population of that size makes them a
lucrative market and an economic threat all at the same time.
They have more than a trillion dollars in foreign currency reserves. Such a huge bankroll gives them a lot of leverage on the global economic
stage.
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Most importantly, China is hungry for commodities. That insatiable
demand moves markets.
They’re driving up prices for everything from copper to sugar. China’s
also one of the largest buyers of commodity producing companies on the
globe. Just look at what they’re doing in Australia. A few years ago
they were nowhere to be seen… this year they account for more than $6
billion in mergers and acquisitions.
The Chinese economic engine is humming along. Despite a global
recession… despite bank failures… despite the near collapse of entire
countries (like Iceland)… China is still growing.
The World Bank recently bumped up their estimates for China’s growth. Now they’re estimating China will see a growth rate of 7.2% in 2009. That’s huge when compared to the sad US growth estimate of only 0.8%.
With a growth engine like that, the world is bound to sit up and take
notice.
But very few people are pounding the table on China. Very few people are
pushing investors to look at China as the next big growth driver. Only
one person really comes to mind - Jim Rogers. He packed up his family
and moved to the Far East. Last I heard he was teaching his children to
speak Chinese as a second language.
How important is China? Consider this.
Automobile sales in China are through the roof. In the month of June,
sales rose 36%. If this trend continues, China will overtake the USA as
the world’s largest auto market THIS YEAR!
In the commodity markets, China has been extremely influential.
Want more proof? Take a look at iron ore prices.
Iron ore is a key component of steel. While the rest of the world’s
steel manufacturers are cutting output, China is increasing production. The huge demand for iron ore pushed prices higher, and with prices
moving higher, China started leaning on iron ore producers. They’re
trying to force a 40% cut to last year’s prices.
If you ask me, China’s the most important country in the world right
now.
While the US is sitting around waiting for the overleveraged consumer to
pull us out of the recession, China’s building skyscrapers and riding
the elevator to the top.
Now more than ever, China matters. As China goes, so
goes the rest of the world.
How can you profit from the growth in China?
Index funds and ETFs can give you broad exposure to China. But I found a
specific company that’s growing right along with the Chinese economy...
YUM! Brands (YUM).
YUM owns a number of restaurants. Ever hear of Long John Silver’s, Pizza
Hut, Taco Bell, A&W, and of course, KFC? Sure you have.
And so has the Chinese consumer.
Right now YUM has more than 35,000 restaurants in more than 110
countries. And in 2008 their sales were more than $11 billion. But
that’s not even close to exciting. Try this on for size… YUM has opened
more than 3,100 stores in China and more are opening every day.
YUM admits China’s their number one market for expansion. Just last year
alone, the China Division contributed more than $469 million to
operating profits… and it’s growing quickly. Buy a share of YUM and you
buy a piece of the rocket ship that is China.
• Sugar (Over $0.17 per lb)
Sugar’s seen a nice rally off the lows set back in late 2008. A weak
dollar makes the commodity cheaper for international buyers. We think
sugar will continue moving higher.
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