Commodities and energy are vital for China's rapidly growing economy. Consequently, the Chinese government increasingly invested more money in commodities or companies in this industry and retired from U.S. bonds. China pulls back noticeably from U.S. government bonds. Instead, more money flows into commodities or companies in this industry. The interested investors can benefit from the change in investment behavior in China.
China is still the largest creditor of America? Maybe not for long. Mid-2009, China had about 1,000 billion dollars in U.S. government bonds. By September 2010, the stock fell to 883 billion dollars.
For many years China had bought U.S. bonds to 100 billion dollars a year. Not anymore. In the first half year, China has purchased more U.S. government bonds worth 23 billion dollars. Estimates is expected to increase this amount in 2010 to 55 billion. In the same period, China invested 31 billion U.S. dollars, however, in so-called hard assets, and for the first time in more than U.S. government bonds.
Why China has so much appetite for hard assets, mainly involve the raw materials? The simplest reason is the need for supplies for the industrialization. The reduction in purchases of American bonds and the strong increase in the purchase of raw materials is also part of the monetary strategy. The Chinese currency specialists consider to be about 40 percent undervalued against the dollar. Therefore, China can be the currency that is officially tied to the dollar, rising each year by about 2 to 3 percent against the dollar.
Now that the dollar is becoming weaker, it istt from the perspective of the Chinese government makes little sense to be invested in treasury bills or other dollar assets. The annual interest income can easily be lost by the exchange loss. China is also reflected in the opinion of experts worried about the creditworthiness of U.S. debt. From this perspective, it is reasonable to invest in facilities retain their value or even likely to increase.
China is in many countries is a welcome investor
Iron ore in Sierra Leone and South Africa, coal and gas in Australia, Brazil and Venezuela in oil have already purchased. Even forest in Canada raises interest in Chinese. Recently, China has increased the expectations of the uranium needed for its nuclear power plants.
The new purchases of government bonds by the U.S. Federal Reserve to make the dollar less attractive, accessible from the Chinese perspective. In our opinion, the Chinese policy is toward diversification. Therefore, raw materials and commodity companies are bought as a strategic investment.
China has of course a balance between prudent, long-term investment and ensure that the U.S. remains financially sound enough to buy many Chinese exports. This point, however, over time, less important, since China itself is produced in domestic purchasing power and the country becomes less dependent on exports.
In many African countries, where investments by the end of the Cold War had fallen sharply, China is a very welcome investor. In addition to direct investments, China offers a mix of cheap loans and infrastructure improvements as well as railway lines and roads and favorable export financing.
Georg Thilenius is managing partner of the bank-affiliated asset management Dr. Thilenius Management GmbH in Stuttgart. The Company is regulated by BaFin.
The potential target companies to buy Chinese acquisitions is not worth the attempt. There are too many potential target companies and no one knows what China will be interested next. Money invested in these companies may be dead money for years to come.
Interestingly, there is Joy Global, a leading American manufacturer of heavy mining equipment. The company produces machinery for mining and transporting coal, copper and iron ore. The machines of Joy Global, in addition to the acquired straight from the view of Bucyrus Caterpillar mining experts as a particularly reliable. Accordingly, these machines are in use worldwide. The industry has given the complexity of the machine high entry barriers. This, together with the top technical position, the position of Joy Global, in our opinion very well. The long-term growth in earnings per share is expected at about 13 percent in the year are. The price-earnings ratio of 15.8 for the year 2011 is not low, but the growth potential and market position the company appropriately. Joy Global also has a strong market position in China.
As long as commodity prices remain high, for which some evidence, investors can benefit from Chinese companies with the interest in commodities.
