Thursday, May 07, 2009

Top-down approach in investing

I usually adopt a bottom up approach towards investing, so it's good to do a top down approach too, just to see the broader picture. I read this little book series (yes, finally completed everyone of them!) called Bull Moves in Bear Markets by Peter Schiff and in it, there are a very investment themes to take note of. Basically the author is very bias towards the near term future of US, notably because of the high amount of debts that it is mired in and the unwillingness of FED to raise the interest rate to curb inflation, thus running the risk of hyperinflation.

Here's a few countries that might do very well in the future:

1. Australia - This is a country rich in natural resources, with lots of supplies of natural gas and metals. Being very close to China, who is very likely to consume huge amounts of metals and energy in the future to fuel its economic growth, Australia is thus likely to participate greatly in the commodities bull run mentioned by Jim Rogers and other such 'visionaries'. I think its close proximity to China makes it a good exporter of commodities to China at a cheaper price.

2. Canada - Stupid also mentioned about the loonies. It is the largest foreign supplier of energy, including oil, gas and uranium to US. Canada is resource rich with a lot of metals, agricultural commodities and energy. Again, another commodities play, with likely appreciation on its currency, like Australia.

3. Singapore - Yes, this little tiny dot is mentioned in the book as well, which I'm pleasantly surprised. For those cheapo neh neh, can go to bookstores to browse this book. It's on page 163. Singapore depends a lot on export, particularly in consumer electronics and IT products. Manufacturing is diversified into petroleum refining, chemicals, mech. engineering and biomedical sciences. I guess Singapore's advantage is its good relationships with China and US, so can probably use its status as a financial, hi-teh and medical tourism hub (the book said so, not me) to leverage itself into a nice cushy position. The other advantage I can think of is the stronger stable government.

Hey, you can complain all you like about the government, but we all have to concede defeat to its stability and the effects this can have on investors abroad. No strikes, tri-partite relationships with labour unions (do we have one?), low unemployment rate, highly educated labour force -- all this adds up I suppose.

There's a line which I snigger at: "Singapore is the third most popular place for Chinese companies to list their stocks, after Hong Kong and the United States." Oh true, that's why we get all the third-tier ass shares listed here.

Ok, I'm not going to list say's the list of other countries that the author feels for: Norway, HK, Switzerland, New Zealand and Netherlands. We can analyse the countries and see that he is bullish on Asia (esp those leaning towards China), as well as those countries with lots of commodities.

Okay, enough from the book. Here's a few themes that I think are worthy to consider in the future:

1. Green technologies

There is this strong undercurrent of green movement happening around the world today. Carbon footprint seems to be a key concern too. I've a lot of young people telling me about saving the earth and so on. China might also be setting up their own green cars to compete with US. Might be the next technology to lift the world's stock market to another feverish bubble.

2. Commodities

Energy related commodities will continue to play a big part to power the world's economy. Hmm, unless someone managed to find a very environmentally friendly and abundant supply of fuel...looks like bubble creating material to me. There are reports saying the huge demand of metals that China will need in build its infrastructure, thus turning it from a net exporter to net importer. With the low interest rate environment, inflation could be a problem in the future, so countries with lots of commodities will be able to take in more foreign exchange gains if the commodity bull run is true, thus maintaining their currency from dropping.


PanzerGrenadier said...

Country and sectoral plays?

My agent asked me to switch my funds from global equities and singapore to china/india, before the sub-prime, during the sub-prime and after the sub-prime.

I wonder why he keeps emphasising the country/sectoral plays?

la papillion said...

Hi PG,

Keeps emphasizing? Perhaps to generate more commission? However, in a more fundamental sense, he might also be right. As long as the portfolio is well diversified, I think it's okay to do such plays.

Settle the core portfolio first, these 'speculative' portfolio can be the side dishes. It only becomes a problem when one becomes too bullish to such play :)