My Views For 2013 & Beyond

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.

(Chinese consumers jamming up a store)

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!