Foreign Investing
China Expert And Money Manager Mark DeWeaver Warns That A Chinese Economic Bust Is Likely And Could Impact Investors Worldwide edit
Monday, June 24, 2013 16:24

Tags: China | investing

 

The New York Times reported today that Chinese government officials telephoned Hong Kong counterparts to request they allow NSA-leaker Edward Snowden to leave Hong Kong. While the Chinese intervention was a surprise, Americans probably should be prepared for more rough patches in U.S.-China relations. To divert attention from domestic economic problems, the Chinese are likely toughen rhetoric with the U.S. and also up the stakes in their skirmishes with Japan and India over disputed territories. These were some of the points made in last Friday’s webinar by Dr. Mark DeWeaver, a principal at Quantrarian Capital Management.

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DeWeaver, who worked in China for eight years and is co-manager of a hedge fund investing in Asia, says China's economy is subject to boom-and-bust cycles and that the time is nearing for a down cycle. DeWeaver says local government officials in China are rewarded with promotions based on economic growth in their provinces or cantons. As a result, he says, China has overbuilt its infrastructure in many regions.   
 
DeWeaver, in his recent book, Animal Spirits with Chinese Characteristics: Investment Booms and Busts in the World's Emerging Economic Giant, documents flaws in the Chinese economy, which could have repercussions for investors worldwide.
 
For example, DeWeaver says 25% of Chinese wind-power capacity is not connected to the grid. Why? Because, he says, the Chinese built wind farms in recent years in the windiest areas of the country without regard to whether electric power would actually be needed there. Consequently, the wind turbines go unused, deteriorating fast because they are frequently sandblasted by wind storms. Similarly, DeWeaver says, new airports were built by local officials without regard to whether air traffic justified their construction. Consequently, large airports operate for years and lose money or get closed because they become to expensive to maintain.
 
DeWeaver says that while “bridges to nowhere” get built in the U.S. the magnitude of boondoggles in China is much greater. He says provincial officials in China have built amusement parks, factories and other projects with little or no economic justification and that paying the debt on these projects and continuing to operate them unproditably is likely to hamper economic growth in China for many years.
 
DeWeaver predicts that the Chinese government could face growing domestic unrest if the economy sinks into the long period of sub-par growth. He says the Chinese will likely divert attention from the poor economy by pointing to problems with the West or neighboring nations.  
 

 

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Could Japan's Long Struggling Economy Finally Be Pulling Out Of Its 25-Year Malaise? edit
Tuesday, May 21, 2013 08:28

Japan has been running a monetary experiment--shock therapy for its ailing economy. It's highly controversial. While it's similar to the liquidity injected into the Ameircan economy by the Federal Reserve since the financial crisis, the amount of liquidity being injected into Japan's economy is much, much greater. What's interesting is that it is working.

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Japan’s $5 trillion economy grew at a robust annualized pace of 3.5% in the first quarter. "The stock market has soared more than 60%over the past year, and the yen has lost more than a quarter of its value, lifting corporate earnings in a country that is dependent on exports," says The New York Times.  

 

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Financial Markets Haven’t Freaked Out Over Cyprus, But That Doesn’t Mean They Won't edit
Monday, March 18, 2013 15:30

Financial markets were stable Monday, not really panicking over reports over the weekend that international authorities will force losses on depositors in Cyprus’s banks.

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The modest declines in financial markets Monday following the Cyrpus news are a sign, says Neil Irwin in today’s Washington Post, “that global investors are betting that the losses being forced upon Cypriot bank deposits will be a one-off situation, and not form a precedent for future aid to banks in Greece, Spain, Portugal and beyond.” However, Irwin says that initial reaction may be proven very wrong, recalling an earlier chapter in Eurozone’s financial crisis that sent the bonds of Ireland, Portugal and Spain into a tailspin.
 

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An In-Depth Look At The Performance Of American Depository Receipts Since 2007 edit
Friday, May 25, 2012 14:21

Once the darling of non-U.S. portfolios, American Depository Receipts (ADRs) are not discussed much any more, probably because of the popularity of exchange-traded funds (ETFs). Nonetheless, the ADR market is huge, representing more than $9 trillion, so someone holds them. How does the performance of ADRs compare with EAFE (Europe Australia Far East), the total foreign market, the U.S. stock market, and inflation over the past five years? The answers hold the key to vital decisions advisors face going forward.

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Investors who make the leap abroad and choose active management then face another set of choices. Should they choose managers who hold the ordinary shares of foreign companies, those who hold portfolios of American Depository Receipts (ADRs), those who hold portfolios of exchange traded funds (ETFs), or a combination of the above, known as “unrestricted”?
 
ADRs are offered on a wide variety of large foreign companies, and afford reasonable participation in foreign market performance with much more efficient trading, settlement and custody. ETFs offer similar flexibilities and efficiencies.
 
These choices should be guided by the investor’s assessment of manager skill – “Will I be rewarded for active management fees?” A new update to my 2007 study, “Perspectives on ADRs,” compares and contrasts ADRs to the EAFE, to the total foreign market, to the U.S. market and to inflation, from 2000 through 2011.
 
EAFE is the most popular index for benchmarking non-U.S. performance, and it is also offered as an ETF. The total foreign market provides an unrestricted perspective, so you can see the effects of limiting investments to just ADRs or just EAFE stocks.
 
Exposure to foreign markets has been a good thing for U.S. investors so far in this century, although the past five years have been mixed. The best choice has been the total unrestricted foreign market, encompassing smaller companies and non-EAFE regions.
 

Looking forward, diversification into foreign markets should help stabilize performance, even if U.S. stocks regain the lead. Once the decision is made to diversify abroad, the “Update on Perspectives on American Depository Receipts (ADRs)” can help in choosing between active and passive management and between ADRs and ordinary shares.

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The Results Of Women's Money Management Roles May Defy Expectations edit
Tuesday, March 27, 2012 11:24

Tags: asset management | investor behavior | research

 

Women traditionally are thought to be more conservative in managing money. But a recent survey says that women banking executives are taking more risks than their male counterparts.

 

In the increased focus on equal treatment and equal pay between men and women, little attention has been pxaid to how women and men function differently in similar roles. The authors of a Bundesbank research report are saying political forces in Europe should take these different role performances to heart in formulating public policy.

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The risk taking isn’t limited to women. Younger people in executive roles also took more risks, while adding Ph.D.s to the mix made management teams more conservative.  
 
The report examined banking roles based on gender, age, and education from 1994 to 2010. Many of the findings were attributed to different levels of experience and also different levels of education. People of both genders who had Ph.D.’s were more inclined to be sophisticated risk managers than those with less education and less experience.
 

 

What this implies about American women in executive positions is unclear since the report was based on European banks. A similar report conducted on women in management positions across the globe would have greater impact.

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