One of the fringe benefits of traveling to Asia is access to custom tailors. Don’t get the wrong idea: I’m not so high and mighty that I think I deserve fancy suits … it’s just hard to find off-the-rack clothes for my 5’6″, 195-pound frame. Besides, the price is right.
I found an excellent tailor in Hong Kong, David Chen, who takes great care of me. Mr. Chen has been a tailor all his life. He operates one of the oldest stores in Hong Kong, Shanghai Wauwing. And he’s seen decades of economic cycles.
So not only does Mr. Chen do great work … he’s also a fountain of great information. While Mr. Chen was measuring me for some shirts, I asked him about his business.
“Oh, business is very good,” he replied. “Business has never been better!” I asked him what country most of his new customers were coming from, and that’s when I got a big surprise. It only took him one second to blurt out …
“The Australians Are My Top
Customers, Especially from Perth”
Australia is a huge country, but it only has 20 million residents. Perth, which is perched on the southwestern corner of Australia, is considered somewhat of a country cousin to the more sophisticated eastern cities, like Sydney and Melbourne.
The Dutch sailor Willem de Vlamingh was the first European to sight the Perth area when he sailed along the coast in 1697. De Vlamingh was less than impressed with the region, describing it as arid, barren and wild. His initial impression was spot on — most of the land was sandy and unsuitable for agriculture.
As a result, Perth’s development lagged well behind that of the eastern cities, until gold was discovered there in the 1890s. Then, the population quadrupled in a decade. And prospectors quickly found out that gold wasn’t the only valuable mineral in the region.
Today, those same natural resources are the common thread between Perth and a tailor in Hong Kong …
Commodity-Hungry China Turns
Perth into a Modern Boomtown
The global commodities boom has been very good to Western Australia and its capital, Perth. Last year, real estate prices in Perth jumped 46% to A$455,000, and are now almost as expensive as Sydney.
The reason for the skyrocketing real estate prices? Perth is in the middle of another 1890s-like gold rush, only this time the rush is for copper, nickel, and iron. That’s because Western Australia is one of the most productive mineral regions in the world.
Thanks to booming demand from China, people in Perth are enjoying the biggest resources boom in Australian history. Western Australia now exports $130 million a day in minerals … and it still can’t keep up with demand! That’s why another $58 billion in expansion projects are underway.
In the waters off the region’s coast, dozens of iron ore carriers (bigger than the Titanic) wait in line to load up before they head to Asian steel plants.
No wonder Western Australia Premier Alan Carpenter just completed a trip to Beijing where he met with Chinese Vice-Premier Zeng Piayan at the Great Hall of the People to solidify the two countries’ relationship.
“The partnership with China is very valuable and important to Western Australia,” said Carpenter. He can say that again! China is now the area’s #1 export customer, and that isn’t going to change for decades.
In fact, Perth and Western Australia better watch out or China will just buy up everything. Let me explain …
Today, Blackstone;
Tomorrow, the World
Do you remember when state-run China National Offshore Oil Corporation (CNOOC) launched an unsolicited bid to buy Unocal in 2005?
That bid was ultimately unsuccessful, but the underlying message was very clear: China needs massive amounts of natural resources to fuel it juggernaut growth, and it’s willing to pony up to get them.
Make no mistake about it, with $1.3 trillion of cash reserves (and growing), China has the financial wherewithal and motivation to scarf up a big chunk of the world’s energy and mining companies.
Recently, the country has bought a $3-billion stake in influential private equity group Blackstone Group. My take: China is laying the groundwork to go on a buying spree.
Don’t think for a minute that China bought into Blackstone because it hopes to make a big return on its investment. Rather, the Chinese government wants to learn the ins and outs of takeovers and private equity deals.
Like a student going off to college, China is enrolled in a crash takeover course. Soon enough, it will be doing instead of learning.
I have no inside knowledge about what companies China has its eyes on, but I can say that China consumes mountains of resources such as oil, copper, steel, iron, aluminum, uranium, cement, natural gas, coal, potash, and lumber.
So it follows that companies like Rio Tinto (RHP), BHP Billiton (BHP), ConocoPhillips (COP), Alcoa (AA), Arch Coal (ACI), Freeport-McMoran (FCX), Companhia Vale do Rio Doce (RIO), and Cleveland-Cliffs (CLF) could be on a Chinese buy list.
Again, I’m not predicting that any of these companies are necessarily going to be taken over. I am predicting, however, that some energy and mineral companies will be bought out by China, resulting in windfall profits for investors who see it coming.
How can you profit from it?
OPTION #1: Invest in the energy and natural resource companies sitting on the biggest proven reserves — companies like ConocoPhillips and BHP Billiton, for example. If you’re looking for some guidance, take a look at Larry Edelson’s Real Wealth Report.
OPTION #2: You could invest in an energy-focused exchange-traded fund (ETF) such as the Energy Select Spider (XLE), iShares Dow Jones Basic Materials (IYM), iShares S&P GSSI Natural Resources (IGE), or Powershares DB Commodity Index (DBC). These investments give you an all-in-one approach to the sector.
OPTION #3: Go after some of the smaller companies that might make great acquisition targets. That’s exactly what Sean Brodrick does in his Red-Hot Global Resources. He’s finding terrific bargains everywhere from Canada to Australia.
OPTION #4: You could buy some inexpensive LEAPS (Long-Term Equity Anticipation Securities) on select companies. LEAPS are nothing more than options that don’t expire for a year or two. They can allow you to ride any price movement in a particular stock for a fraction of the cost of the shares. And your risk is limited to the price you paid for the options.
For example, when I last checked, ConocoPhillips was trading in the high $70s and a January 2009 LEAPS option with a strike price of $80 could be had for roughly $11. So, for about one-seventh the price of the shares, you could buy LEAPS that give you the right to buy ConocoPhillips at $80 — no matter how high it goes — between now and January 2009. Even if the stock jumps to $150, you would be able to buy them at $80 a share. And if the stock never made it past $80, the most you’d lose would be the price you paid for the LEAPS.
Now, only you can decide which (if any) of those investment choices are appropriate for your situation. But no matter what you do, keep in mind my most important rule for successful investing over the next decade: Get “long” whatever China is buying, and get the heck away from anything that competes against the country.
Oh, and remember, always listen to your tailor!
Best wishes,
Tony
About Money and Markets
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Kristen Adams, Jennifer Moran, Red Morgan, Adam Shafer, Jennifer Newman-Amos, and Julie Trudeau.
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