I wish to add to Chan Cheh Shin’s latest contribution in my
blog on “Looking Into 2013 Investment Landscape of G3” (Please refer to his
article posted on Dec. 27, 2012).
Like Chan, many other analysts have waved the yellow flag
regarding the uncertainties just ahead for the global economy at large, and not
just the G3. Nevertheless, the yellow flag does not mean one should come to a
halt. Investors can still move on, however perhaps more cautiously.
Yet in a draggy economic cycle, investment opportunities
still exist. There will be the watch-out investors who look for stocks of
companies with strong fundamentals when prices are at the lower levels.
It is also in such trepidation times that many active investors
will put their money in “defensive” stocks.
For readers who are not familiar with this term, a defensive
stock has the following characteristics:
· +Remains stable during different business cycles.
In a recessionary period, it tends to perform better than the market; in expansion
cycle, it tends to perform below the market. Also known as non-cyclical stock.
·
+Of goods or services that are needed by
consumers at all times. The utilities industry is a good example. Regardless of
whatever business cycle, people still need to use gas and electricity. Stocks
of consumer staples firms in the US, for example, are viewed as safe havens in
uncertain landscapes. They normally reflect history of consistent cash flows
and dividends.
·
+Normally sought after during periods of market
downturn. However, if market is expected to trend up, then a defensive stock
may be less preferred than a stock that has higher volatility but much greater
potentials for price elevation.
Allow me to side-track
from stocks and touch a bit on China. A commentary is not complete without
mentioning about the Asian dragon, bearing in mind it is now the No. 2 world
economy, and fast catching up the US in the No. 1 position probably well before
year 2025.
Analysts anticipate China should be able to attain GDP growth
rate at around 7% in 2013, slightly down from 2012 estimate of around 7.5%.
The recent Central Economic Work Conference held in Beijing
zeroed in at two key drivers for ensuring the nation’s economic growth in the
next few years, viz. urbanization and domestic consumption. In fact,
urbanization will serve as the spike to spur up domestic demand. In the longer
run, the decision makers want to reduce reliance on exports.
Aggressive urbanization
and domestic consumption strategies will entail the following:
·
+More focus on building infrastructure and
industries in the less developed areas. As Vice Premier Li Keqiang declared,
domestic demand potentials are not only in the eastern region, but also the
less-developed central and western regions.
·
+Better urbanization, modern agriculture,
city-rural integration, integration of development in the areas along the
Yangtze River.
· +
Companies to move operations to the smaller
cities.
·
+More job opportunities to be available in the
smaller cities and rural areas.
·
+Close the income gap between existing urban and
rural areas.
·
+Social well-being initiatives for the rural
areas to be incorporated for implementation.
·
+Over the past two years, developers have been
encouraged to go to tier 3 and tier 4 cities where property prices are less
expensive and property tightening less strict.
·
+Positive outlook for stocks in finance,
construction and consumer sectors.
·
+Urbanization will benefit infrastructure and
construction sectors as well as those related to social welfare.
A good model of successful urbanization is reflected in
Shenzhen. In 1979, it was a poor fishing village of 20,000 inhabitants. Thirty
years later, the population soared to around 9 million and GDP per capita
reached US$13,600. Plans are afoot to achieve US$20,000 GDP per capita by 2015,
the same level as some developed nations. Needless to mention the positive
impact to domestic and consumer demand in Shenzhen due to successful
development and urbanization efforts implemented there.
Look at Shenzhen in 1980 and now - a vast difference because of urbanization, won't you agree?
(Sources of Shenzhen pictures: 1.
Gaoloumi.com 2. SSDPenguian on
Wikimedia Commons)
In ending my sharing, I have this to propagate: Move along
2013 with cautious prudence in your investment views. Meanwhile, look out for
China in the next few years. HAPPY 2013!
