Asian Groups Take Advantage of Dollar Weakness
|Sep 5, 2007|
Q: Asian Groups are buying US Assets. Are you detecting trends?
Asian groups are taking advantage of dollar weakness. The Economic Time™ in America has been worsening, meaning that these companies are looking increasingly attractive.
With some Congressmen getting rabidly protectionist, particularly China will be buying into powerful US companies such as Blackstone - precisely in order to get more power on Capitol Hill.
Q: Is that a sign that there's not much of a credit crunch in Asia?
I would not connect these events. Instead, local companies are flush with cash, so they can go shopping. Besides, in most Asian countries The Economic Time™ is good, meaning that companies are keen too invest. Finally, remember that Asian companies, too, are going through their own internal growth cycles - and some of them are now "ready" to jump into the big U.S. market.
Q: Are there regulatory issues with M&A both in the US and China?
There are in the US. U.S law does prohibit foreigners to take stakes in certain industries - for instance in defence and also in telecommunications. Anything that would threaten the national security is off-limits for foreign direct investors in America.
In Asia, most countries are governed from the center. So one set of regulations applies. In China, however, "matrix muddle" is the operative word. Nobody is really in charge. Thus many regulatory issues at a local level are decided upon through political considerations: remember that "all politics are local". This “politico-regulatory jungle" makes life more difficult for foreign investors entering China.
Q: Are M&A or corporate news activities enough to buoy the markets?
I don't think that the scale is at the size that you have in the U.S, but what could buoy the markets would be more and more corporate buybacks out here.
Q: China Construction Bank, to IPO this Friday, is said to be the largest IPO. What is investor sentiment like in China?
The market is focusing more on the sub prime mess in the US, but we are also saying that investors should be more aware of internal exposure.
Q: Will the Fed cut rates this time?
The Fed will not cut rates this time, because they want to maintain their reputation as inflation hawks, preferring to be more safe than sorry. Equally, they don't think they want to be seen as bailing out the finance sector. Rate cuts will be used the hotter the election season gets, and a 25 basis point cut won't solve a thing: the subprime mess - and the looming credit card mess - are too big to be "solved" by a 25 basis point rate cut. Banks don't want to lend- regardless of the interest rate.
Q: What sectors are you looking at?
My favorite sector is the internet story in China. Only 13% of china's population are on the internet so it's going to be a huge growth industry. Besides, only 0.6% of all small and medium-sized businesses advertise on China's internet!
Another sector that I like: China infrastructure plays (such as telecoms / building materials/ transport/ retail) because they all derive from Beijing's emphasis on urbanisation. Besides, don't forget China's Olympics! They, too, require plenty of infrastructure.
Infrastructure plays also feature in the looming Thai constitutional and the Korean Presidential elections. Pork barrel spending in order to garner votes is a favoured election ploy anywhere in the world!
Finally, China's Olympics will generate plenty of tourism travel out here. Especially those visitors coming from the distant shores of America, Europe and Latin America will not want to visit "just" China, but also take in other places like Hong Kong, Macau and sunny Southeast Asia. So, tourism plays such as hotels, airlines, and luxury retailers are worth delving into.