This time is different

OK, today is like a bonanza day.  I’m posting 2 entries a day to make up for what I missed the last week.  I have been contemplating a very fundamental problem in investing: should we be buying when things are down thinking that they should recover after a while (as they always have) OR do we really think that this time is different and that we are in a very unique world right now and what we are seeing here is unprecedented and we will not be going back to the old norms.  Believe it or not, despite having gone through this torture for more than 20 years, I still find myself having to go through this agony of self doubt every time this happens.

So in front of us is the opportunity to buy many stocks cheap, especially in China. However, many smart institutional investors that I speak to have warned me about investing in China, maybe ever.  I was told that the closer the investor is to China, the more pessimistic their views.  Investors based in China are very bearish about the future of China whilst investors in the US are most optimistic (because many of them have only seen Bull market corrections in their own markets in the last 20 years … every dip is a buying opportunity!).  My Chinese friends have pointed out to me that many of the smartest and most politically connected people in the country have been trying their hardest to move their assets out of the country despite the very tight controls that have been in place for very many years now.  Many prominent businessmen have moved to Singapore, I have been told.  In fact the families of many Chinese government officials have also emigrated to Singapore.  One would have thought that these are the guys most sensitive to what is happening on the ground and are the most astute analysts of China.  Who would you trust on their analysis of China, these guys or some analyst/fund manager based in the US?  My friends have pointed to deep seated NPL problems within the banking sector and the structural problems of the economy.  Where would the growth come from, they asked?  The factors that have contributed to the past success of the country is now gone: export growth fuelled by cheap Chinese labour and open international markets, government infrastructure spending that ensures that growth targets each year are met.  Now with a hostile US, suspicions on China and their intentions everywhere around the world and lack of further room for significant infrastructure build up compared to the past, where indeed is the growth going to come from?  The US-China trade war might have started a irreversible process of manufacturing moving out of China into other emerging markets (and even maybe back to the US).  So definitely one less source of FDI.

Speaking to another of my friend this week working in a senior role in a sovereign wealth fund, I was told that the fund is starting to contemplate the unthinkable: what if China were to take over Taiwan forcefully?  If the recent sanctions on ZTE showed the world anything, it was the fact that when it comes to technology, China was still at the mercy of US and its tech companies.  More specifically, China is seriously lagging behind in the semiconductor industry.  Indeed, most of its imports was in semiconductor related products.  And of course the easiest and fastest way to overcome that is to take over control of Taiwanese companies which are at the frontline of many technologies.  Anyway, I leave you to ponder the severity of what might follow if this scenario plays out.

So is this time really different?

Investor depressed 05102018

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