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The World Bank published a bank study for G20 finance ministers and central bank governors last weekend, and it offers a gloomy prediction that the global economy will shrink in 2009, the first time since World War II.
Thanks to falling demand from the United States, the World Bank is forecasting the sharpest drop in world trade in 80 years and expects 94 out of 116 developing countries to fall into recession in 2009 after being hit by economic slowdowns.
Poor countries in Africa, Asia, Central Europe, and Latin America are getting hit the worst. Here are some stats:
- Cambodia has lost 30,000 garment-industry jobs.
- India lost 500,000 jobs in export-related businesses, such as gems, jewelry, auto, and textile industries in the last 90 days.
- Brazil reported its first trade deficit in eight years as exports plunged 28 percent in 2008.
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| Cambodia has lost 10 percent of its garment-industry workforce, the country’s one significant export industry. |
Net private capital inflows to emerging markets are estimated to plummet to $164 billion, or 17 percent below 2007 levels.
U.S. Sub-Prime Implosion Infects
The Global Financial System
The World Bank is laying the blame on the U.S. sub-prime mortgage crisis spreading to the rest of the world.
How severe is the global recession? So bad that the International Monetary Fund says it doesn’t have enough funds to meet all the demand for emergency loans.
So bad that the World Bank warned that it expects an additional 50 million people to be forced to live on less than $2 a day across the globe.
The line of countries seeking IMF handouts has more than the usual third-world suspects looking for money. Countries such as Austria, Ireland and Spain — believed to have graduated from IMF food lines decades ago — may soon beg for some IMF emergency money, too.
The Chinese Economy
Continues to Grow
One country that isn’t asking for any World Bank or IMF handouts is China. Why not? Because its economy continues to expand.
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| Despite the global slowdown, China’s economy is expected to grow by 8 percent this year. |
- There isn’t a credit crunch in China. Chinese banks issued $237 billion in new loans in January, a 101 percent increase year-over-year. And equal to one-third of the total lending for all of 2008.
- M2, a key measurement of money in the system, increased by 18.8 percent in January.
- The February Purchasing Manager’s Index hit 49, just one point short of economic expansion and a big jump from an all-time low of 38.8 in November.
- The Chinese economy grew by 6.8 percent in the fourth quarter and is expected to hit 8 percent this year.
Could you imagine the cartwheels Obama and his administration would do to get that type of growth in the United States?
Invest Where the Growth Is
The big issue for investors is choosing where to invest their money. Should you choose one of those 94 countries in a recession (including the United States) or look at countries that are producing positive growth?
I think the answer is pretty simple — invest where the growth is, and that my friend is in China. To get some direct exposure to China, consider the following exchange-traded funds that you may consider:
iShares FTSE/Xinhua China 25 Index (FXI): Seeks to track the performance of the FTSE/Xinhua China 25 Index. This index consists of 25 companies that represent the largest 25 Chinese companies listed on the Hong Kong Stock Exchange.
PowerShares Golden Dragon Halter USX China Portfolio (PGJ): Seeks results that correspond to the returns of the Halter USX China index. This index consists of 103 Chinese companies whose common stock is publicly traded in the United States.
SPDR S&P China (GXC): Seeks to replicate the total return performance of the S&P/Citigroup BMI China index. This index consists of the largest 342 companies that are publicly traded and based in China.
I suggest, however, a more rifle-shot approach to investing in China. The reason is that the three above-mentioned ETFs are dominated by large, inefficient government-owned, government-controlled companies. Let me tell you, the last company I want to invest in is one controlled by a bunch of Communists.
What you want to do is focus on companies run by a new brand of Chinese entrepreneurs who live and die with the success of the companies they founded.
I’m talking about companies such as New Oriental Education (EDU), Mindray Medical (MR), Ctrip.com (CTRP), Home Inns (HMIN), and E-House (EJ).
Now, don’t run out and buy any of those companies without doing your own homework. There are dozens of similar Chinese entrepreneurial companies run with the same fervor and breakneck growth. I’m just trying to give you some examples of the great opportunities still available in China.
The World Bank has laid out an investment road map for you, and I recommend you follow it — lighten up on the United States and load up on China.
Best wishes,
Tony
About Global Wealth Report
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Global Wealth Report (GWR) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in GWR, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in GWR are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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