Posted on 01/01/2002 2:21:11 PM PST by super175
HERE'S a sobering fact. If you had invested $1,000 in the Singapore stock market in 1985, and taken the Straits Times Index as a proxy, your money would have grown to $2,613 today.
But the same $1,000 invested in the US market or the Dow Jones Industrial Average would have ballooned to $8,509.
While the annual compounded returns of 5.8 per cent over the last 17 years in the Singapore market are still respectable when compared with fixed deposit interest rates, they are nowhere nearly as rewarding as the returns from the US market of 13.4 per cent per annum.
Furthermore, the daily standard deviation - a measure of volatility or risk - for the Singapore market is 1.5 per cent against 1.1 per cent for the US market.
In other words, not only does the US market give higher returns, it is also less risky. Thus on a risk-adjusted basis, the US is a far more appealing market than Singapore.
This then begs the question, is there any incentive to invest in the Singapore market at all?
To answer that multi-billion dollar question, we have to ask ourselves the reason for the outperformance of the US market.
A company's share price appreciates when its profit grows. And profit grows when the company can sell its products to a bigger market.
Over the last two decades, the over-riding business trend has been globalisation and liberalisation of trade.
In an environment where everyone is free to compete, undoubtedly the ones with the keenest competitive edge, or the world-beaters, will prosper. And we have found that currently, the bulk of the world-beaters are American companies.
US corporations have a number of advantages to begin with.
Chief of these is the fact that they have a huge domestic market. By the time they join the ranks of the top 10 companies in their own country, they would have already conquered half the world, figuratively speaking.
Flying start: They would have attained an economy of scale that would make them competitive globally, they would have honed their marketing skills and they would have amassed the cash needed to break into new markets.
Contrast that with companies in Singapore, or for that matter, companies in any emerging market. Up until recently, most of them were operating in cosy and protected markets. With liberalisation sweeping across the globe, the DBSs and Yeo Hiap Sengs of the world now have to slug it out with Citibank and Coca-Cola in their home turfs.
Earnings worries in the face of keen competition no doubt have capped the appreciation of domestic companies' share prices.
Operating in the confines of their own countries, and lacking the resources to rise to become world-beaters, and assuming that they don't lose market share to the world-beaters, the best these domestic-based companies can hope for is to grow in tandem with the domestic population and thus economy.
Assuming a population growth of 3 per cent, coupled with inflation of another 2 or 3 per cent, we have an annual growth of about 6 per cent - not far off from what was registered on the Straits Times Index in the last 17 years.
The question now is, will US companies, and thus its stock market, continue their winning ways? It would appear so. After all, the liberalisation trend is still intact and now the most prized market, China, is opening up as well.
But herein also lies the catch. The huge domestic market in China - under the right atmosphere and given time - could, like the US, breed the next generations of world-beaters.
The Chinese government is definitely fostering the right environment for businesses to flourish and the time factor will depend on how diligently China abides by the requirements of the World Trade Organization.
Already, companies like telecoms infrastructure manufacturer Huawei, home appliance maker Haier and beer brewer Qingdao are making headway in the global marketplace.
The Chinese are an enterprising lot. And the law of large numbers dictates that they will have more talent than any other country in the world.
But there is still one element that China lacks and that will need years to master: the soft skill of public relations and the marketing panache of US companies.
So an educated guess would be that US companies, and by extension its stock market, will continue to outperform the smaller emerging markets over the next five to 10 years.
Winning tactics: And the best strategy to take advantage of that is to buy into a US market index fund, putting money in on a regular basis and holding it over a five-to-10 year horizon.
As for the Singapore market, although the long-term growth trend is about 6 per cent, there is a tendency for the market to overshoot both on the upside as well as the downside. An active trading strategy may thus yield a much better return.
For those preferring to buy and hold, they would do well to pick companies which have shown competitive strengths in niche markets in the world.
Finally, no investor should ignore China. But until corporate governance and transparency of China-listed companies matches those of the developed world, a better strategy at present would be to gain exposure through foreign-listed companies which derive much of their sales from Chinese consumers.
Tell us where he has gone wrong, if you would.
People perpetuate this myth, and it is very common, to overstate the returns and understate the internal trappings of the Chinese internal market. Tapping into that ‘big market’ is not nearly as easy as people make it out to be. The devil really is in all the details. There are some internal and almost insurmountable ‘mount everests’ in the Chinese market. It is not just regulations, it has to do with structure. China is actually economically fragmented and essentially ‘all over the place’ on the scale. “Dual Economy” is an understatement. Because of that, and the underlying economic structure, tapping the Chinese market, even by Chinese companies is hard. Aside from a pocket here and a pocket there, China is long way off. Marketing in China isn’t nearly as straightforward as it is in America or Canada, or elsewhere. Its not nearly as profitable either.
A company's share price appreciates when its profit grows. And profit grows when the company can sell its products to a bigger market.
This is so true. Chinese companies, in order to make big profits are going to have to export. Simply put their internal markets don’t bring the kinds of returns that most of the people that apologize for China claim. As a result, what will happen is China will use its competitive edge. What is that? Price. China will more than likely make headway, but only in certain areas, just as it has been in the past. In those areas that are deemed “outsource-able” such as manufacturing, China will make money and take share. As far as getting on the other end of the ladder and really innovating, that is a whole new ballgame. THAT is where the money is made. 10 years from now China might be proclaiming a 35% share of world PC manufacturing, but when you really think about it, what does that really mean? “Cheaper” only solves a small portion of the problems. There might be one or two that work on the other end, but not most.
As far as talent goes, there are some seriously talented people in China. Even at that though it takes years to learn to be at the helm of a company and it takes A LOT to innovate. American companies are not better only because they market better. We identify and solve problems better. We create things. It is skilled labor to say the least.
Then when you take into account the actual numbers of people that are afforded the opportunity to attend university, the number really is not that great. Circles run pretty small in China. Odds are 2/3 of the engineers in Shenzhen know each other. To proclaim that China will turn out more business talent (on a global scale) than everyone else, is about like saying ‘everyone on my high school football team is going to be in the NFL’.
A lot of their stellar performers are going to be stellar for sure, but most likely within the confines of China itself. I guess you can call it big fish in little ponds. Like I said though, there are some good performers, but getting all the good performers together on one team might be a problem.
The skilled labor talent pool in America is tremendous and it was not developed in just 10 years or 20 years. We have literally been building on and learning and developing our economy for hundreds of years. For Chinese executives to experience that kind of thing, quite simply they are going to have to come to America. People come from all over to work here. It is because of our system. People are tested and tried and pushed to their very limits. China on the other hand is kind of like he describes Singapore, protectionist, etc. A lot of the bosses in China don’t want people thinking too much or rocking the boat as well as the idea that the whole place is a protectionist nightmare. People there as a whole are not in a culture (corporate or otherwise) that allows them explore their potential. As those things change, more talent will emerge.
China will most likely grow relative to itself. At the same time they grow though America is going to be growing and refining too. China is at least 75 to 100 years off, and most likely A LOT more. In the end 10 or 20 years from now, China will still be a mixed bag.
This author though seems to be talking about Chinese stock markets and their returns. In the end, there are going to be a handful of Chinese companies that ‘make it’ (make it meaning survive) for the next 20 years and turn potential profits. If you want to know which ones, look for two primary symptoms: 1. State backing/support. 2. Foreign support or partnership to supply the world with certain products. (such as companies that contract with say, Dell, that supply PC components not only to China, but all over the world). The ones that are isolated only to China, stay away from. Other than those few, mixed bag indeed.
China plans to reverse brain drain with star salaries
China plans to offer star salaries and preferential treatment to stem the brain drain that has proved one of the most formidable challenges to the economy over the past two decades.
The increased competition that entry into the World Trade Organization will bring puts the government under even more pressure to lure back Chinese studying at foreign universities, the China Daily reported.
The good news was that the slowing world economy may make it easier to persuade talented young people to return to China upon graduation, the paper said, citing Minister of Personnel Zhang Xuezhong.
"China ought to seize the opportunity to encourage more overseas Chinese with genuine ability and learning to come back and run high-tech enterprises," Zhang said.
China has so far not been very successful in attracting well-educated people after they completed their studies.
About 400,000 Chinese have studied abroad since 1978, and only 130,000 have returned, according to official statistics.
Apart from above-average salaries, China also plans to lure talented people with preferential treatment such as free entry and exit to and from China, and better service for those who want to set up their own companies.
The government also intends to create more positions for post-doctoral research at universities and research institutes throughout the country, the paper said.
Rule #2: This group of people have the right to rule over everyone as they see fit.
Rule #3: You better not forget rule #1 or #2, no matter what.
While some people think their country is becoming capitalist, it depends on what one means by that. Entrepreneurship by anyone without sanction of the ruling body is outlawed. No one else can have power of any kind EXCEPT for the Party.
You can say whatever it is that you say as long as it does not challenge the Party. Any potential challengers are mowed down. In other words, you better believe that all those Revolutions were right, and that those Revolutions gave gave the current group the RIGHT to rule FOREVER. If you do not believe this you better keep it to yourself or you will pay like never before. It has nothing to do with what the people want.
The end of their feudalism is a long way off.
THAT is Chinese capitalism. It is unlike our version of it where the 'capitalism' starts at the grass roots with personal rights and entrepreneurship at is core.
Anything other than the above definition is a daydream and wrong.
No, the CCP has publicly recognized and apologized for the mistakes in the past. That means teh CCP knows it is not 100% right.
>>No one else can have power of any kind EXCEPT for the Party.
In the market economy the power comes from the wealth. As the capitalists join in the party, the power is shifting from the "woking class" to the "oppersssive class".
You can say whatever it is that you say as long as it does not challenge the Party.
>>potential challengers are mowed down.
It depends on how you challenge. Deng Xaioping challenged Maoism and he succeeded.
>>It is unlike our version of it where the 'capitalism' starts at the grass roots with personal rights and entrepreneurship at is core.
If you examine the history of PRC's capitalism, it did start from the grass roots. It began with the privitization of land of a villige in 1978 when the party members risked their lives to distribute the land to the peasants.
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