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Proprietary Data Insights Financial Pros Top Country ETF Searches This Month
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Alternatives to Manufacturing in China We’ve heard from companies like Intel (INTC) that plan to invest in new manufacturing capacity in the U.S. and Europe. However, most manufacturing takes years to come online. In the meantime, companies are looking to places like Mexico, Indonesia, Thailand, Vietnam, India, and Malaysia. However, it’s not as simple as picking up operations and moving them. China’s spent the last two decades creating manufacturing hubs and the infrastructure to support them. This tightly integrated system reduces costs while providing reasonable quality. And it happens across a broad range of industries. Apple manufacturer Foxconn agreed to a new facility in Wisconsin back in 2017. That deal, touted by the White House at the time, crashed. With labor markets as tight as they’ve ever been, how would we even staff more manufacturing plants? These are questions that companies need to be answered before they step up investment in the U.S. In the meantime, it gives us an opportunity to look for investments in some of these global hotspots. For that, we can use iShares country related ETFs such as EWM for Malaysia, INDA for India, and EWW Mexico. You can find a complete list here. |
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China |
China Flips Like a Pancake |
Key Takeaways:
While most of the global central banks gear up to raise interest rates to fight inflation, China’s central bank has other plans. A slowing economy has made Beijing rethink a broad swath of its strategies. Slowest Growth Ever In a sign that times have changed, China released a growth target of just 5.5%, one of the slowest in years. Last year, China’s GDP grew by 8.1%. In the 4th quarter, China’s economy slowed to 4.0%. FitchRatings forecasts growth of just 4.8% in 2022. China is facing a floundering housing market as the price of homes has tripled in the last 20 years with the ratio of home prices to annual income now averaging 43.15 in Shenzen, 42.47 in Beijing, and 33.36 in Shanghai. For reference, London measures 13.37 and NYC comes in at 8.76. Real estate supports almost 25% of China’s GDP. Shooting Itself in the Foot Several recent proclamations by Chinese President Xi turned out to hurt China’s economy more than help. Curbs on coal mining forced the country to import vast quantities from Australia last winter. Higher energy prices in other commodities are deepening China’s reliance on coal in particular. A crackdown on stocks listed overseas sent shares of Chinese stocks listed on American exchanges spiraling downward. So it was a surprise that Chinese regulators told Chinese firms traded in the U.S. to prepare for an audit, a key ingredient to keeping them listed on American exchanges. And there is the softening of the zero Covid policy. After multiple shutdowns that close entire cities for weeks at a time, officials are now taking a more strategic approach, allowing businesses to reopen and people to work as they tackle outbreaks. The Bottom Line: Chinese officials recognize their economy is in trouble. They face energy shortages, an overblown real estate sector, slowing private sector growth, and its own set of inflationary pressures. Should China’s economic outlook worsen, expect the central government to push more free market approaches to juice growth. For U.S. investors, the recent change by Chinese officials doesn’t give the all-clear for stocks like Alibaba (BABA) or JD.com (JD). But, it puts them on the right path to avoiding delisting. If you aren’t interested in individual Chinese companies, consider the FXI or KWEB ETFs. |
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