Concerns for the BRIC - China and India - Part 2
moneyrelations :: Jan.09.2008
Hello, stranger! New here? How about subscribing to my RSS feed? Thanks for visiting!
This is the second part in a 3-part series in which I highlight some concerns with investing in the BRIC countries. Part 1 dealt with Brazil and Russia. Today I’ll cover the behemoths of the service and manufacturing industries.
I is for India
When I think about India, it’s with mixed views. I can see the wealth with Bollywood and the IT service industry but this is in stark contrast with the shanty towns and slums you also read about.
So what gives?
There’s a caste system in India. The haves and the have nots. To bridge this gap, measures by the government have been made to “encourage” universities and companies to accept a certain lower-caste quota. As we all know, good intentions do not necessarily equal good decisions. What happens if a reserved spot goes to someone who is not functionally capable of the position?
Reading about India’s caste system is both fascinating and confusing. Arguments for and against affirmative action is impeding economic progress. The bottom line is that even though India has a huge population, it’s still not providing enough trained workers for the service industry.
Furthermore, the influx of foreign dollars into India has propelled the rupee into new heights. What was once cheap labour does not seem so cheap anymore.
Concerns for India: The rise of the rupee and a shortage of trained workers.
C is for China
Thinking about investing in China? Pundits always express caution due to the Chinese government.
But why? According to this Xinhua report, China has the fifth largest population of millionaires.
Okay, so with this newfound elite wealth and a burgeoning middle class, the economic system can’t be that bad, eh?
It depends on what you read. If I read a Chinese (English) website as sited above, it says that the millionaire entrepreneurs made it from scratch. If I read an American website, it says that they did it by cozying up to the government.
So what’s up with the government and the financial system of China?
Thankfully, the Economist came up with this article that explains it a digestible format.
With few exceptions, China bans its citizens from investing abroad. At home, the choice is between savings accounts paying less than inflation or real estate with uncertain property rights.
Given the lack of choices, it’s no wonder that the Chinese have flocked to their stock exchanges pumping up the P/E.
However, there are no counter measures to combat escalating prices as shorting is illegal.
From the article, it also says that information on companies is hard to come by - further obfuscating true valuation. This is compounded by the fact that shares in benchmark companies are held by the companies themselves or by the government. If a stock is illiquid and is not tested on the open market, can you really believe what they tell you it’s worth?
I can see why there are allegations that to make it big in China, you need the right government connections to maneuver through the BS…
Concerns for China: Inflated share prices, lack of transparency, and fear of government shenanigans.
This concludes a drive-by review of investment concerns for the BRIC countries.
Tomorrow I’ll wrap it up with my final thoughts!
Investing ::
4 Comments »
Did you enjoy the post?
Subscribe to Money Relations and the Comments as well.
Share in Social Media
Related Posts:
Of the four BRIC countries it seems Brazil garners the most support from the financial pundits. I tend to lean towards China because of their budding westernized culture and adoption of westernized products/companies, but admittedly the political climate is less than ideal for serious investment.
Hi FD,
Yes, lots of Brazil love and that’s when I start getting worried
I am going to take a serious look at South Korea as well. I don’t think it fits most people’s mind as an emerging market with all the technology at its disposal but I think it might be undervalued.
Thanks for dropping by!
I’d lean towards india (compared to china) in a heartbeat. One of the good legacies of the bad british imperialism is … generally, rule of law, compared to china which is all over the place. (and if you want to be amused, check out the recent video from china, a big press announcement about the 2008 olympics - the wife of the sportscaster, on live tv, accused her husband of infidelity! seriously! she was rushed off the stage, but not before all the billion viewers discovered the sportscaster is a jerk).
I read about it! Didn’t see it
Talk about an embarrassment in a culture where pride is a big deal. But what the heck, he deserved it. Ownage.