Tag Archives: investment

1 Comment

Concerns that the Chinese economy might ‘crash land’ in 2012 ranked high on the list of potential negative tail events that troubled investors in risk assets as they returned to their desks for the New Year.  These fears were eased if not removed altogether, once the Middle Kingdom’s National Bureau of Statistics revealed that the economy expanded 8.9 per cent year-on-year during the fourth quarter, comfortably above expectations and far removed from levels of growth that could be considered consistent with a hard economic landing in the immediate future.

However, the positive sentiment generated by the headline numbers would appear to be decidedly naïve given that the annualised growth rate quarter-on-quarter dropped to 8.2 per cent from 9.5 per cent in the third quarter – a troubling rate of deceleration – while, the ongoing correction in the property market still has the potential to provoke further downside momentum.  The fact of the matter is that the debt-financed, investment-led growth of recent years has significantly increased the potential for greater economic turbulence in the months and years ahead than most analysts currently envisage.

It is important to note that China’s fundamental strategy since reforms were first introduced in the late-1970s has been large-scale investment in physical capital, facilitated by high gross domestic savings rates and through state control of banks.  China emulated the precedent set by its high-achieving Asian neighbours during their corresponding periods of development and, through most of the subsequent three decades its investment rate has not been out-of-line with the capital spending booms of previous great economic transformations.

Gross fixed capital formation (GFCF), a broad measure of investment, averaged 34.5 per cent of GDP during the latter half of the 1970s, 35.4 per cent during the 1980s and 38.5 per cent during the 1990s.  This compares to an average investment rate of 33 per cent of GDP for Japan between 1961 and 1973, almost 40 per cent for Singapore during the 1980s and, 31.5 per cent for South Korea from 1983 to 1991.

However, the close parallels between China’s economic renaissance and previous great transformation periods comes to an end during the most recent decade, as the Middle Kingdom’s capital spending boom continues to grow in magnitude and duration.  GFCF jumped from 32 per cent of GDP in 1997 to near 50 per cent in the most recent calendar year and, has been above 40 per cent for nine straight years.

In contrast, of its high-achieving neighbours, only Singapore managed to register a peak investment rate during its corresponding period of growth anything close to the level currently reported in China and, even then the GFCF to GDP ratio was sustained above 40 per cent for a brief period.  Indeed, the investment rate dropped sharply from an average of 46 per cent of GDP between 1981 and 1985 to 33 per cent in the subsequent five-year period.

Neither Japan nor South Korea registered investment rates above 40 per cent during their respective periods of high growth – the former peaked at 36 per cent of GDP in 1973 and the latter at 39 per cent in 1991 – while, rates above 30 per cent did not persist for long in either case.

It is abundantly clear therefore, that China’s capital spending boom is unprecedented in modern economic history but, a relatively high investment ratio of itself does not necessarily imply that it is excessive and predetermined to end in a bust.  That depends on how efficiently resources are allocated and, in this regard, the omens are not good.

The incremental capital/output ratio (ICOR), the quantity of new capital required to generate an additional unit of growth, is commonly used to measure investment efficiency, where a reading of three is considered normal and a ratio above four is considered inefficient.

The trend in China’s ICOR is far from reassuring given that it was above four during most of the past decade and jumped to a reading of six in 2011 following the most recent surge in capital spending.  Of note is the fact that the efficiency of capital investment is at the worst level since the Middle Kingdom’s last hard economic landing in 1989/90.

The marked deterioration in the marginal return on investment is troubling since it has been fuelled by a credit boom that has seen total domestic credit – private and government – jump from 121 per cent of GDP during the fourth quarter of 2008 to an estimated 180 per cent by the end of 2011 – a level that is notably high compared to countries at a comparable income level.

The almost sixty percentage point jump in credit relative to GDP – with much of the increase emanating from the large unregulated banking sector – would appear to be symptomatic of the increasingly speculative nature of the investment boom and a financial crisis could well ensue should the boom turn to bust.

Official data for economic activity during last year’s final quarter has convinced many investors that a hard landing is not in store for the Chinese economy.  Close examination of the facts however, suggest that such a call is far too early to make – the probability of significant economic turbulence is far from non-trivial.

 

Previously posted on www.charliefell.com

 

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

1 Comment

A lot of folks like to share vacation news via social media. Updates on their latest pets, travels or even the food they eat. The things that excite me are business successes and news having to do with currency markets.

Specifically, I get excited about new opportunities for investors and how the world as a whole is becoming more accessible because of social tools and global communication. I want to look at the big picture today. And the biggest thing in my lens is China and Forex trading in that country.

In three years - April 2007 to April 2010 - according to the Bank of International Settlements, average daily Forex trading in China had increased 112.9 percent to $19.8 billion. What this tells me is that the savvy investor in China knows his currency market and pays attention to the economy. But the culture in China is a bit different from other countries when it comes to investment attitudes.

For example, a recent Reuters article suggested that many investors in China pay more attention to trusted advisors and information gleaned from trusted contacts. Within the article, Ding Yuan, a professor of accounting at the China Europe International Business School, said there’s actually a lot of trading in China based on privileged information...which borders on insider trading.

I see this as a great opportunity to bring a positive investment methodology to the country. Chinese retail investors are seeking qualified trading sources whose expertise provides an easy path to follow. I’m encouraged by the fact that three of our expert, elite traders in our program are Chinese - currency trading experts who are trusted, local and skilled.

Add to this the attitude Chinese government is taking toward its currency in allowing the Yuan forwards to rise to combat import inflation. This presents the Chinese people with positive economic news - or at least less negative news - and helps bolster the attitude of some currency investors.

Ultimately, the investment style in China is a clear validation that copying the trades of professional Forex traders is in demand. And it’s the way many investors approach their investments there - with expert advice from trusted contacts. Further, the strengthening of the Yuan underscores the increasing global attention to currency markets and the importance of stabilizing local and regional economies.

In allowing their people to explore a different, innovative and online investment option, China has given me hope that we live in a world where social media tools can bridge the gaps between communities, countries and people. Currensee is moving forward with their 2011 goal of international expansion, first came the UK and now...

We’re going to China! It’s gonna be a great journey. Making stops in Beijing, Shanghai, and HongKong - Read our press release here.

-------

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

While cookouts and fireworks were certainly on our mind last week here in the US, we still kept an eye on the news. Here’s our roundup of top stories that we’ve read in between all of the celebrations:

After the Federal Reserve ended QE2 last week, many investors are now wondering what’s next for the U.S. economy for the rest of 2011. You can watch the experts debate what they think is next for QE2 by viewing our recent webinar. The good news, however, is that after two years of rapid decline, the dollar is now entering an uptrend, gaining against every major currency. In other news, the 2011 World Wealth Report that was recently released displays the staggering estimate that in 2010, 103,000 people out of 7 billion on the planet controlled 36.1 percent of the world’s wealth. Additionally, the report shows that hedge funds are no longer a favored alternative investment among the class of high net worth individuals. On the international front, the euro continues to weaken as interest rates rise, and China has begun to expand foreign exchange reserves using non-U.S. dollar assets – a sign that investment in the yuan may be on the rise.

-------

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

That's right folks! These are exciting days here at Currensee.  We're proud to announce that our alternative investment service, which gives investors unique access to the world currency markets, has secured an additional $4 million as Series C financing from North Bridge Venture Partners, Egan-Managed Capital and Vernon & Park Capital. To date, the C round money brings us to a total financing of $16.8 million!

The latest round of funding will be used to develop new decision-making, collaboration and portfolio management tools for investors, to make currency investing even simpler and more transparent. It will also be used to fortify the Currensee technology infrastructure including data center expansion and enhancements to the Currensee Intelligent Trade Replication Technology™... a sophisticated trade automation engine that precisely manages the timing and round-turn execution of trades. The funds will also drive further international development, including the expansion of the Currensee sales teams in the United Kingdom and Europe, as well as new global partnership deals in Asia and Europe.

“Our customers come to us and invest in Trade Leaders mainly because of the lackluster returns and lack of transparency that come with traditional investments,” said Dave Lemont, CEO of Currensee. “We are bringing the world currency markets to every investor looking to move beyond the stock market while creating a viable alternative asset class for the market as a whole. This new funding will help us expand our distribution globally so that investors and professional money managers can benefit from the fast growing foreign exchange market.”

For more information about the latest news and our newest investors, North Bridge Venture Partners, Egan-Managed Capital and Vernon & Park Capital, follow the link below and read all about the exciting road ahead of Currensee and our Currensee Trade Leaders™ Investment Program.

Currensee Raises $4M in Series C Financing from North Bridge Venture Partners, Egan-Managed Capital and Vernon & Park Capital