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» China-Business-Articles » Reading: "Biggest China Trends We'll Profit From Over the Next 12 Months"
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| Biggest China Trends We'll Profit From Over the Next 12 Months |
By:
Robert Hsu of chinaprofitstrategy.com |
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Trend #1: The Rise of the Chuppies
China has the world's fourth-largest economy with a fast-growing middle class and an even faster-growing upper-middle-class consumer subgroup. I've dubbed these Chinese urban professionals the "Chuppies."
Chinese demographics are skewing much younger than in developed countries, with 72% of the population under age 45. Including married couples and their children, 5% of the under-45 population lives in households that earn between $10,000 and $125,000 (in U.S. dollars) a year, with most of them living in affluent first-tier cities and coastal urban areas. While 5% may sound small, the number of Chuppies and their dependents is staggering: At least 50 million strong, and their rank continues to grow at over 10% a year.
Over the next 15 years, Chuppies will become the world's most important group of consumers, perhaps becoming the driving force of global economic growth. While many articles and studies have been written about China's emerging middle class, there have been almost no widely-published studies outside of China that deal with this emerging economic force.
Until now, that is. My team and I just completed the first consumer survey of Chuppies. I’ve shared the complete survey, results and analysis with my China Strategy readers and this intelligence is helping us profit from several exciting trends we discovered.
It’s not too late to get on board. You can read my entire published report and get my specific recommendations on how to profit from our findings when you accept this risk free trial to China Strategy. Click here to get started:
http://chinaprofitstrategy.com/about.html
Trend #2: China’s Insatiable Demand
for Energy
China’s insatiable demand for natural resources and commodities has fueled a worldwide boom in commodities. If you’ve tried to put a shingle on your roof, pour concrete, drive a nail or hoist a two-by-four in the past year, you’ve been in direct competition with a 1.3 billion-strong China powerhouse growing at 16.5% a year.
You’ve seen the wealth that this breathtaking expansion has created. Copper, nickel, iron ore, aluminum, coal and especially oil—the building blocks of the China Miracle—doubled, tripled and quadrupled in price in 2005.
I hope you, like me, made some nice profits in these areas over the last few years, but I have to warn you that this commodities bull market is showing its age. To hear the talking heads on television and a lot of analysts on Wall Street, you would have to believe that making money in commodities is easy. But smart investors in the China Miracle realize that the easy profits have already been made—in most cases.
The time when you could buy any diversified natural resources mutual fund and make 25% a year is over.That’s partly because the cycle is playing itself out, but it’s also because China’s needs are changing—fast.
I believe we are in the fifth inning of the commodity bull market because high prices are beginning to curb demand in many raw materials. For instance, Chinese demand for crude oil is slowing down. Also, as a director at the Los Angeles Chapter of the American Association of Individual Investors, I am hearing too much agreement among our members regarding the "inevitability" of $100 oil. When everyone agrees on something, it usually is getting late in the game.
That said, I believe there are still excellent opportunities to make money from China's (and the world's) growing demand, but you now need a much more selective approach. Industrial commodities will no longer move in synch, so we need to analyze each commodity's supply-demand situation individually to determine the best investments.
For example: Expansion is less even, and new capabilities could soon create a glut where there was a shortage before. For example, the concrete and bitumen being poured for the new superhighway system has been drastically downscaled. I saw gangs of road workers recently in a rural area outside Xian using hammers and wheelbarrows to build roads. No concrete, no tar, no fancy machinery in sight. This firsthand observation is confirmed when we look into China’s import figures for concrete: China has drastically cut back cement imports and ramped up domestic production.
The most dangerous investment of all is steel. China is building up its low-grade steel capacity so fast that it could create a slump anytime now. Overcapacity has already cut China’s internal steel prices in half. Exporting this steel would be the next step for China, which could create havoc in global markets. And where steel prices go, there go nickel and aluminum prices, too.
China’s economic emergence—the great economic boom in the history of the world—is filled with both enormous opportunities and wealth-destroying hazards. My goal is to help you profit from the China Miracle, and to do that successfully, you need to know both the right stocks to invest in as well as the stocks to avoid.
In the past year, there have been a number of major takeover deals brewing in oil, natural gas and metals -- such as Unocal, Burlington Resources and Placer Dome. This wave of takeover frenzy is still going strong, and I expect it to continue throughout this year.
Today’s Biggest Commodity Play
New commodities shortages are also appearing, providing investors who can get “up-close” to the China Miracle with exciting opportunities. The best opportunity right now is copper. Vast new factories, neon-lit cities, thrilling new skyscrapers, all rely on one small detail—a thread of copper wire pulsing with electricity.
China's infrastructure build-out continues at a furious pace, and it will for some time. From the sky above, Shanghai looks like endless rows of tall buildings made of Legos. In the past five years, over 4,000 buildings of 20 or more stories have been built in the city, and China's National Highway System added 25,000 miles in the last 10 years -- matching the U.S. These construction projects are the 21st century equivalents of the Great Wall, and the list just goes on and on.
But the lack of an efficient electrical grid is a severe problem in China. Because of power cuts and brownouts, many factories run a day shift from 11:00 p.m. to 8:00 a.m. Even factories producing desktop computers are often forced to rely on kerosene lamps and diesel generators to get through a summer day-time shift. Children in Taizhou, one of China’s fastest-growing cities, often do homework by candlelight in the summer.
That’s why China is rushing to build two new nuclear power plants every two years for the next 20 years. It’s also why the astonishing Three Gorges Dam (for hydroelectric power) and the new Yangshan port (for natural gas imports) are both so massive—and so vital.
But in the end, all of this power must be transmitted, and no one’s ever devised a more efficient way than copper wire. And what makes this such a great investment opportunity is that China must import copper; it can’t simply ramp up production.
Copper prices have quadrupled in the past several years from $0.70 a pound to over $3.00, and this is one area where I expect prices to continue to soar because of dramatic shortages. There is simply not enough supply to keep up with demand, and this shortage will only get worse in the coming years.
China is the leading consumer of copper, accounting for over 20% of the entire world's demand. China's demand is increasing 20% a year, versus a tiny 1.9% for the rest of the world. The biggest reason for higher demand is the need for electricity to power all of the growth and all of the consumer goods being purchased.
Approximately 45% of China's copper demand goes to generating power. This is so important in China that its government has committed $560 billion for power generation over the next five years. A lot of copper will go into that.
At the same time, supply is getting tighter and tighter. Copper warehouse levels at the London Metals Exchange are down over 90% since 2002! One reason is that we just aren't finding any new copper. There were 65 discoveries in the decade between 1960 and 1970, but there have been fewer than 60 in the 35 years since.
Even when there is a discovery, the mining process is very tight. 75% of the world's largest copper mines (21 of the 28 largest) cannot be expanded. And Chile, the biggest copper producer (accounting for 35% of the world's supply), is having difficulty expanding mining because of a lack of water, which is required to extract the metal from chalcopyrite ore. It's estimated that Chilean copper production will peak in only two more years.
With the current shortage of copper destined to grow far worse in the coming years, the stage is set for prices to continue to soar. So how do we make money?
When supply is short, you want to invest in the companies who control the supply. In this case, that's mining companies. In my newsletter, China Strategy, I’m recommending two mining giants right now.
http://chinaprofitstrategy.com/ |
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