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Investing in the Next Big Thing

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China holds many attractions for Filipino businessmen. The economy is growing in double digits combined with over a billion in population. Many believe the economic powers of this century will reside in Asia, with India and China leading the way; and that Europe and the US, the economic superpowers of the last two centuries, will lose their leadership.

Philippine Taipans have made significant inroads into China with businesses in shopping malls, property developments, manufacturing and distribution of snack foods, as well as fashion retailing, to name a few. Trading and business opportunities between the Philippines and China are plentiful. There are still many sectors and market niches to concentrate on and profit from.

Members of the Anvil Business Club visited Shanghai and neighboring Jiangsu province late last year to explore business and trading opportunities first hand.

However, many Filipino businessmen are not able to trade or do business with the Chinese due to language and cultural barriers. Some continue to be concerned about fraud and large minimum order quantities, while others worry about their Chinese counterparts not fulfilling their end of the bargain regarding quality and timing. These reasons prevent small and medium size Filipino entrepreneurs, and even individual Filipinos, from benefiting from the “China Growth Story.”

An alternative way to ride on the China phenomenon is to invest in publicly listed US, European, or even Asian companies with significant China operations. There are also many Chinese companies listed in the stock exchanges of Hong Kong, Singapore, and the US. This is one venture that does not require large capital and is open to even the average Filipino wage earner. A small investor is able identify the opportunities, be part of the “story,” and easily exit once they think the story is over.

Long term stories include Nike and Adidas, which are expected to benefit from the Beijing Olympics as more Chinese are motivated to increase sports participation thereafter. Companies like Caterpillar also benefit from the continuing construction boom and mining companies continue to feed China’s ever increasing requirements.

Chinese Internet companies are listed on the NASDAQ in the US. The growth of computer and Internet usage in China in the past few years has been breathtaking. More growth is expected as the Internet becomes more ingrained in the lifestyle of young Chinese citizens.

Large State Owned Enterprises (SOE) from China are restructuring to be more nimble. SOEs have indeed started becoming significant international players in their respective fields. Many are listed on the Hong Kong Stock Exchange with dual listings in the US.

Warren Buffet, the world’s richest investor, saw an opportunity and invested in PetroChina in 2002 and 2003 for US$488 million (3.34 billion yuan). In 2007, he sold all interests in PetroChina for US$4 billion (27.45 billion yuan); a very profitable investment for him—and invested in PetroChina from 2004 to 2006.

Buffet, in his 2007 message to shareholders said, “A truly great business must have an enduring ‘moat’  that protects excellent returns on invested capital. Capitalism guarantees that competitors will repeatedly assault any business ‘castle’ that is earning high returns. Therefore, a formidable barrier—such as being a low-cost producer or possessing a powerful worldwide brand—is essential for sustained success. Business history is filled with ‘Roman candles,’ companies whose
 moats proved illusory and were soon crossed.”

Anvil members, in trying to emulate Buffet, visited Singapore in July 2007 and met CEOs and CFOs of several Chinese companies listed on the Singapore Stock Exchange. Have any of the Anvil members already found the next PetroChina? Time will tell.

However, the stock market has been bad in 2008. The worldwide economy is experiencing a crisis. Is this an opportunity or a threat? Buffet admonishes, “Be fearful when others are greedy and be greedy when others are fearful.” The question is, are most of those around you fearful or greedy?

print ed: 08/08


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