We got three pieces of seemingly unrelated news last week. But they all underscore just how connected the world’s markets have become. These trends will figure prominently in your investing scorecard for years to come.
Incidentally, all three point to the same conclusion I’ve been hammering home with my Capital & Crisis readers: now’s the time for investing in China.
First, there is the new record in forex currency trading. The Bank for International Settlements dips its meters into the world of currencies every three years by way of a survey. Its latest effort shows currency trading tops $4 trillion a day. That’s a meaninglessly large number in a sea of such numbers, I know. (Who can really imagine what $4 trillion is?)
But for comparison, look at recent history. In 2007, it was $3.3 trillion. In 2004, it was “only” $1.9 trillion. We’ve more than doubled it in just six years.
That reflects the surging flows of money between countries. If you are an American company and do business in China, you create a need for foreign exchange as you swap profits from China back to dollars. Or if you choose to invest in China, your dollars convert to renminbi.
Every international transaction generates a need for currency trading. As The Wall Street Journal said of the recent BIS survey:
“The continued rise in trading reflects the increased globalization of investing. With the big developed economies of the U.S., Europe and Japan struggling, investors are turning toward other markets for returns and generating more foreign exchange trading in the process.”
That’s the key, in my view, and you can see it when you look at the numbers in more detail. Trading in dollars for Indian, Brazilian and Chinese currency jumped. But old mainstays like trading dollars for British pounds actually fell.
You can also see how important commodities have become in all of this. If you look, U.S. dollars converted to Australian dollars jumped 35% since 2007 — well ahead of the 20% gain in overall currency trading. And trading in the Canadian dollar was up even more, at 44%. Canada and Australia are resource rich and U.S. investors are putting more money there to take stakes in resource companies and projects.
If you look at stock mutual funds, those that invest overseas have taken in $42 billion this year. That’s in sharp contrast to outflow in U.S. stock funds.
The second piece of news that grabbed my eye this week was that meat prices have hit a 20-year high. Global meat prices are up 16% in the last year. Why?
Again, you have to think in terms of a global marketplace. There has been strong demand for a higher-protein diet from emerging markets as people get richer. In short, people are eating more meat. The Middle East is one of the largest importers for food, for example. Strong demand for lamb there helped push lamb prices to 37-year highs.
In Brazil, meat consumption will hit a record this year. That means less meat leaving Brazil, which could matter, since it is the second largest exporter, behind only the U.S. And if you look around the globe — Russia, Mexico, South Korea and Vietnam — they will all consume more meat this year.
China too has seen its meat consumption increase thanks to a burgeoning middle class that’s made meat a larger part of its diet. By most estimates, emerging market demand for meat will rise at least 65% to midcentury.
And finally, the last bit of news was the report on factory activity in the U.S. and China. It sent a jolt through markets on Wednesday. But again, look beneath the surface. What was the key driver of this favorable report?
As The Wall Street Journal put it: “The manufacturing sector’s recovery is closely tied to global growth, especially Asia.” Even just casual look at U.S. manufacturers for anecdotal evidence confirms it. The WSJ story included a note on Furniture Brands, which is tripling its capital spending this year. Most of it will go toward expansion — in Indonesia. Joy Global, a Milwaukee-based manufacturer, raised its profit outlook for the year.
The key reason? Growth in China.
Today’s world is very much a global one. It’s becoming more so by the day. As always, there will be winners and losers. As investors, this globally connected world creates a lot more uncertainty. But one thing is certain: You ignore the markets beyond your borders at your peril.
Sincerely,
Chris Mayer
Penny Sleuth
September 7, 2010
3 New Reasons to Invest in China was originally featured in the Penny Sleuth.
Incidentally, all three point to the same conclusion I’ve been hammering home with my Capital & Crisis readers: now’s the time for investing in China.
First, there is the new record in forex currency trading. The Bank for International Settlements dips its meters into the world of currencies every three years by way of a survey. Its latest effort shows currency trading tops $4 trillion a day. That’s a meaninglessly large number in a sea of such numbers, I know. (Who can really imagine what $4 trillion is?)
But for comparison, look at recent history. In 2007, it was $3.3 trillion. In 2004, it was “only” $1.9 trillion. We’ve more than doubled it in just six years.
That reflects the surging flows of money between countries. If you are an American company and do business in China, you create a need for foreign exchange as you swap profits from China back to dollars. Or if you choose to invest in China, your dollars convert to renminbi.
Every international transaction generates a need for currency trading. As The Wall Street Journal said of the recent BIS survey:
“The continued rise in trading reflects the increased globalization of investing. With the big developed economies of the U.S., Europe and Japan struggling, investors are turning toward other markets for returns and generating more foreign exchange trading in the process.”
That’s the key, in my view, and you can see it when you look at the numbers in more detail. Trading in dollars for Indian, Brazilian and Chinese currency jumped. But old mainstays like trading dollars for British pounds actually fell.
You can also see how important commodities have become in all of this. If you look, U.S. dollars converted to Australian dollars jumped 35% since 2007 — well ahead of the 20% gain in overall currency trading. And trading in the Canadian dollar was up even more, at 44%. Canada and Australia are resource rich and U.S. investors are putting more money there to take stakes in resource companies and projects.
If you look at stock mutual funds, those that invest overseas have taken in $42 billion this year. That’s in sharp contrast to outflow in U.S. stock funds.
The second piece of news that grabbed my eye this week was that meat prices have hit a 20-year high. Global meat prices are up 16% in the last year. Why?
Again, you have to think in terms of a global marketplace. There has been strong demand for a higher-protein diet from emerging markets as people get richer. In short, people are eating more meat. The Middle East is one of the largest importers for food, for example. Strong demand for lamb there helped push lamb prices to 37-year highs.
In Brazil, meat consumption will hit a record this year. That means less meat leaving Brazil, which could matter, since it is the second largest exporter, behind only the U.S. And if you look around the globe — Russia, Mexico, South Korea and Vietnam — they will all consume more meat this year.
China too has seen its meat consumption increase thanks to a burgeoning middle class that’s made meat a larger part of its diet. By most estimates, emerging market demand for meat will rise at least 65% to midcentury.
And finally, the last bit of news was the report on factory activity in the U.S. and China. It sent a jolt through markets on Wednesday. But again, look beneath the surface. What was the key driver of this favorable report?
As The Wall Street Journal put it: “The manufacturing sector’s recovery is closely tied to global growth, especially Asia.” Even just casual look at U.S. manufacturers for anecdotal evidence confirms it. The WSJ story included a note on Furniture Brands, which is tripling its capital spending this year. Most of it will go toward expansion — in Indonesia. Joy Global, a Milwaukee-based manufacturer, raised its profit outlook for the year.
The key reason? Growth in China.
Today’s world is very much a global one. It’s becoming more so by the day. As always, there will be winners and losers. As investors, this globally connected world creates a lot more uncertainty. But one thing is certain: You ignore the markets beyond your borders at your peril.
Sincerely,
Chris Mayer
Penny Sleuth
September 7, 2010
3 New Reasons to Invest in China was originally featured in the Penny Sleuth.
