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Finance: Focus on China when investing

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PHUKET: China’s stock market is imploding and that’s not only shaking confidence in the country, it’s also impacting global financial markets. However, investors need to keep in mind that over the past 15 years, the Chinese stock market has actually experienced both sharp rises and steep falls, with the last crash occurring in 2007.

The market then largely moved sideways until about a year ago when the government and state-controlled media began talking it up as they began pro-market reforms. Since there are few productive places for Chinese savers to put their money to work beyond the property market, which the government has also tried to cool, many new and inexperienced retail investors entered the stock market.

The problems started at the beginning of this year when economic growth slowed dramatically and the effort to reform financial markets turned into an effort to create a wealth effect to prop up faltering economic growth.

There were actually several catalysts that finally burst the Chinese stock market bubble, and these included MSCI not including China in their emerging market indices, which means there is no big influx of foreign institutional investing; the easing of monetary policy, but no fresh money entering the stock market; and heavy margin financing that caused small margin calls to lead to increasingly larger share price falls. There were also expectations that the government would never allow the stock market to fall since it had talked up the markets.

Most foreign investors and funds own shares or have exposure to Chinese stocks trading on foreign exchanges or the Hong Kong Stock Exchange, but not the sinking Shanghai Stock Exchange, which the government is attempting to prop up as local investors are taking heavy losses.

As draconian policy interventions aimed at shoring up share prices have largely failed or only had a short-lived effect, the widely held belief that China’s government and policy makers are in complete control of the economy, and can achieve whatever outcomes they desire, has been badly shaken. In other words, there are still limits to autocratic command and control economies.

China’s government is also still dominated by autocratic political leaders schooled in Maoism who are neither economists nor technocrats – meaning they can’t necessarily grasp the free market policy concepts needed to run a modern economy. This makes badly needed long-term structural reforms difficult to consider or implement.

The stock market crash can still spill over into the general Chinese economy to impact multinational companies with big operations there, but many companies do not break out their sales and profits for the country – making it difficult for investors to quantify any direct damage or exposure.

Aside from Chinese stocks and China ETFs, consumer stocks with heavy exposure to China like Yum! Brand Incorporated (NYSE: YUM); casino stocks with Macau operations like Las Vegas Sands Corporation (NYSE: LVS); and commodities, with one example being copper prices having now neared six-year lows; could continue to see bigger headwinds.

However, not all stocks with exposure to China will be impacted the same way, with a good example being Boeing Co (NYSE: BA), which has long term, as much as 20-year contracts, to sell aircraft or spare parts to China, but shares of Caterpillar (NYSE: CAT), which sells both mining and construction equipment that’s also used in big infrastructure projects that the Chinese love to undertake, have recently hit a 52-week low.

The bottom line is that the Chinese economy is second in size to the US and is still very dynamic and growing – meaning foreign investors cannot ignore the direct and indirect investment opportunities there. Moreover, any investor with a well-diversified portfolio should see a limited fallout from any Chinese stock market crash.

Don Freeman, BSME is president of Freeman Capital Management, a registered investment adviser with the US Securities Exchange Commission (SEC), based in Phuket. He has over 15 years of experience working with expatriates, specializing in portfolio management, US tax preparation, financial planning and UK pension transfers. Don can be reached at 089-970 5795 or email: freemancapital@gmail.com.

— Don Freeman

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Archiving articles from the Phuket Gazette circa 1998 - 2017. View the Phuket Gazette online archive and Digital Gazette PDF Prints.

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Governments & old media versus social media – who will win? | VIDEO

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Governments & old media versus social media – who will win? | VIDEO | The Thaiger

We look at the recent changes made by the Australian and Indian governments to except control over the world’s biggest social media platforms. India has issued strict new rules for Facebook, Twitter and other social media platforms just weeks after the Indian government attempted to pressure Twitter to take down social media accounts it deemed, well, anti social. There is now an open battle between the rise of social media platforms and the governments and ‘old’ media that have been able to maintain a certain level of control over the ‘message’ for the last century. Who will win?

The rules require any social media company to create three roles within India… a “compliance officer” who ensures they follow local laws; a “grievance officer” who addresses complaints from Indian social media users; and a “contact person” who can actually be contacted by lawyers and other aggrieved Indian parties… 24/7.

The democratisation of the news model, with social media as its catalyst, will continue to baffle traditional media and governments who used to enjoy a level of control over what stories get told. The battles of Google and Facebook, with the governments of India and Australia will be followed in plenty of other countries as well.

At the root of all discussions will be the difference between what governments THINK social media is all about and the reality about how quickly the media landscape has changed. You’ll get to read about it first, on a social media platform… probably on the screen you’re watching this news story right now.

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The social media giants in battle with ‘old’ media and world governments | VIDEO

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The social media giants in battle with ‘old’ media and world governments | VIDEO | The Thaiger

“The rules signal greater willingness by countries around the world to rein in big tech firms such as Google, Facebook and Twitter that the governments fear have become too powerful with little accountability.”

India has issued strict new rules for Facebook, Twitter and other social media platforms just weeks after the Indian government attempted to pressure Twitter to take down social media accounts it deemed, well, anti social.

The rules require any social media company to create three roles within India… a “compliance officer” who ensures they follow local laws; a “grievance officer” who addresses complaints from Indian social media users; and a “contact person” who can actually be contacted by lawyers and other aggrieved Indian parties… 24/7.

The companies are also being made to publish a compliance report each month with details about how many complaints they’ve received and the action they took.

They’ll also be required to remove ‘some’ types of content including “full or partial nudity,” any “sexual act” or “impersonations including morphed images”

The democratisation of the news model, with social media as its catalyst, will continue to baffle traditional media and governments who used to enjoy a level of control over what stories get told.

The battles of Google and Facebook, with the governments of India and Australia will be followed in plenty of other countries as well.

At the root of all discussions will be the difference between what governments THINK social media is all about and the reality about how quickly the media landscape has changed. You’ll get to read about it first, on a social media platform… probably on the screen you’re watching this news story right now.

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Never miss out on future posts by following The Thaiger.

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Turbulence ahead for Thailand’s aviation industry | VIDEO

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Turbulence ahead for Thailand’s aviation industry | VIDEO | The Thaiger

When the airlines, in particular, were asking the government to put their hands in their pockets for some relief funding in August last year, it was genuinely thought that international tourists would be coming back for the high season in December and January. At the very least local tourists and expats would head back to the skies over the traditional holiday break. And surely the Chinese would be back for Chinese New Year?

As we know now, none of that happened. A resurge in cases started just south of Bangkok on December 20 last year, just before Christmas, kicking off another round of restrictions, pretty much killing off any possibility of a high season ‘bump’ for the tourist industry. Airlines slashed flights from their schedule, and hotels, which had dusted off their reception desks for the surge of tourists, shut their doors again.

Domestically, the hotel business saw 6 million room nights in the government’s latest stimulus campaign fully redeemed. But the air ticket quota of 2 million seats still has over 1.3 million seats unused. Local tourists mostly skipped flights and opted for destinations within driving distance of their homes.

As for international tourism… well that still seems months or years away, even now.

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