Other than cash, gold, and a few select natural resource stocks, the only other investments I'd make in these wild and crazy times are in Chinese companies, buying them hand over fist for the long haul.
Yes, that's right. Even bearing in mind the recent milk/melamine scandal, which is outrageous.
You see, China is about the only economy on the planet with both short- and long-term growth potential. Just take a look at the latest economic stats ...
China's August retail sales exploded 23.2% higher to their fastest growth rate in nine years.
Jewelry sales soared a whopping 44.3%, making China the world's second-largest consumer of gold jewelry. Even more impressive when you consider that only one out of every ten Chinese consumers can currently afford gold.
The booming retail sales growth is not confined to just the major east coast cities like Shanghai, either. That 23.2% figure is for ALL of China, proving that the expansion is now blanketing even the rural areas.
Think August might be just a freak month? Well consider the eight month, year-to-date retail sales growth of 21.9% — up from 16.8% for all of 2007. That's almost one-third higher!
No wonder Gome Electrical Appliances Holdings Ltd., China's No. 2 electronics retailer, reported that first-half profits almost tripled.
Have any doubt about domestic consumption supporting China's economy? Well these stats prove otherwise, that domestic demand is soaring.
It would not be good if all that spending occurred by going into debt. But that's not the case in China. Indeed ...
Disposable income in China is soaring.Urban income jumped 14.4% for the first six months of this year. And even after accounting for inflation, the real net gains in urban incomes gained a huge 6.3%.
But it's not just the urban areas of China that are doing well.
Rural incomes are also soaring — exploding 19.8% higher in the first six months of 2008, from a year earlier. Net of inflation, rural incomes are up 10.3%!
Compare these figures to U.S. net income — adjusted for inflation it's MINUS .9%.
China's seasonally-adjusted Purchasing Managers' Index, jumped to 51.2 in September.
The index — which tracks changes in output, new orders, employment, inventories, and prices — is showing explosive manufacturing growth and indicates China's economy is weathering the global slowdown.
The output side of the index rose to 54.6 in September from 48.7 percent in August, while the index of new orders climbed to 51.3 from 46.
And in case you think China's exports are slowing, the index of export orders increased as well, to 48.8 from 48.4. Total overseas sales of Chinese goods are up 22.4% for the first eight months of the year.
Capital investment also continues to surge in China.Fixed-asset investment growth rose a whopping 29.2% in July, while urban fixed-asset investment for the first half of the year increased 27%.
Property investment jumped 31%. Investment in farming, fishing and forestry sectors exploded higher by 61.9%. Total fixed asset investment in central provinces surged an amazing 35.3%!
I could keep going, but I think you get the picture. China's economy, despite what the naysayers are telling you, continues to crank ahead, firing away on eight cylinders.
So while the rest of the world is in the midst of a severe credit contraction, China's first-half GDP gained 10.1%, including outstanding rural growth of as much as 13% across six central provinces!
What about China's banks? Are they facing severe losses from what I call the "first world credit crisis?"
Hardly! At most,
China's banks have about 3.7% of their total net worth invested outside of China. So even if all of that went up in smoke, it would hardly make a dent in China's banking capital.Indeed, and ironically ...
Two more things to be on the lookout for with China ...First, China will continue to buy up oil and lend underlying support to the oil market for years to come. It's the chief reason oil prices have remained above the $90 level, and China will be the chief reason we will eventually see $200-a-barrel oil.
Second, I have strong reason to believe that Beijing is soon going to substantially increase its gold reserves, which at 600 metric tons, are among the lowest in the world as a percent of the country's foreign exchange reserves.
Why?
Beijing now has almost $2 TRILLION in reserves in its piggy bank. I have no doubt that central bankers at the People's Bank of China have held high level discussions with Treasury Secretary Henry Paulson.
And Chinese central bankers are prepared to buy oodles of the U.S. Treasury securities that Paulson is going to have to auction off to raise funds for the $700 billion plus U.S. bank bailout.
Put simply, China is going to use a large portion of its $2 trillion in reserves to help bail out the U.S.
