As China Bubble Deflates Look to India But Beware of Strong Rupee

Interesting to see some weakness in Chinese shares this week, as GDP growth "slowed" to 11.5%. Wow, how will they ever survive? These interest rate cuts at 0.27% a meeting, are really quite ineffective. Ironic that we are cutting at a faster rate than China... ironic, not in a good way.

Meanwhile, India is doing very well. Looks like my timing last week in getting into the Indian names (Buying a Bucket of India), as the Chinese stocks seemed overcooked, is working out well.

Today we have the two Indian Banks ICICI Bank (IBN) +9%, HDFC Bank (HDB) +7.5%; also my Indian copper stock Sterlite Industries (SLT) +7%. Even the broad closed end India Fund is +4.5%. Tata Motors (TTM) is lagging a bit but still up 3.8%.

While it is nice to get this short term victory in the stock prices, upon reflection I am going to re-allocate my positioning in India. I have purposely stayed away from the outsourcing stocks due to the strong rupee (strong currency means less exports and these companies by nature are outsource firms!). I reluctantly created the Tata Motors (TTM) position as I built a basket of Indian stocks - at the time I wrote:

Tata Motors is part of the Tata Group (think General Electric of India) with their hands in everything. Unfortunately the more exciting parts of the Tata Group are not available to buy here in the US, and the automotive arm has some serious competition but again, this is a basket buy, and not a huge position.

So I am going to take this opportunity to cut the name out of the portfolio, as Tata Motors does have quite a bit of export business which will continue to be hurt as Indian gains power (and its currency appreciates) in the world. Plus the truck/automotive market is competitive - if I could own their parent company I would much prefer that.

Eventually I will replace TTM with a broad based index for India: iPath MSCI India (INP). So this is more of a fine tuning of a market I think most US investors seem to ignore while they are chasing Chinese stocks. I'm attempting to keep good exposure to the country while staying away as much as possible from companies (that while still growing at healthy pace), have some export pressure due to currency strength, and sticking with companies less affected by this, such as the banks, and Sterlite Industries.

There is just a dearth of opportunities in the ADR market for Indian stocks once you get past the outsource shops and banks so it is hard to find opportunities. So today, I am closing Tata Motors'' 1.1% position and I took some light profits in Sterlite Industries as well as its up from low $18s in the Friday swoon to near $24 or about 33% in a week. Ignoring the Friday swoon, it is still up nearly 12% since Monday morning. Selling 700 shares of Tata Motors

generated $14,100. I'll redeploy these funds in the iPath MSCI India fund down the road when it invariably pulls back. I've brought Sterlite Industries down to a 1.6%, keeping that core position, and looking to add back to it, on a pullback in this very volatile stock. And I'll keep looking under rocks for some non outsourcing India stocks that trade as ADRs in the US.

While the 2 bank stocks are volatile, their 'lack of financial innovation' (see "Quote of the Decade") should give them a premium since people actually understand what they do, and they aren't hiding things off balance sheet unlike our treasured US institutions. Not to mention they are in a high growth area for next few decades.

Disclosure: Long all names but Tata Motors and iPath MSCI India in fund; no personal positions.

Comments

[Sr. Pessimist:]

Financial innovation is kind of an over-glorious decoration of what money really is. I don't think financial innovation can solve the economic problems Marx predicted for the bourgeoisie. Further, I am not surprised to see the monetary policies of China relatively ineffective at curbing growth and expansion rates. Money is having less and less to do with things.

What it means on the personal level is: we're all people. If I want to live in Europe, the European money is no less green than American money to me. A European girl might be good for me, just as an American girl. I don't care about money as much as I care about a meaningful life. If a meaningful life is more available for a valuable worker in Europe, then I'll go there. Money won't stop me. Money won't draw me to go there. It's the bottom line that will persuade me. As it tends to be, America is a worse place to live than Europe because of what influence money has on the way of life. Money is evil. Money is very influential in America. America is a vile place to live your life.

Same with China or Japan. Those girls can be by my side just as well. What's the difference? And what government is more oppressive than the one in the US? The Chinese one? Prove it.

Fed rate cuts won't save the US economy, just as Chinese rate cuts won't be their silver bullet, either. It's probably because a Chinese human being is not much different from an American human being. Just because they're unskilled doesn't mean they're useless. Just because they're uneducated doesn't mean they can't do better work than a degreed individual in the same field. I can breed with a Chinese woman, a Japanese woman, an Indian woman, or a European woman, and a successful reproduction of an individual of the species "homo sapien" will be welcomed into the world.

Standard American education is at times as bad as no education in other parts of the world. China has a world-class education system. They're not less educated. They're not worth less than Americans one for one. The Indian government has been extremely aggressive in training doctors, lawyers, and engineering professionals for outsourcing to foreign countries. Those are about your only three choices out there, as I heard by word of mouth.

Put the American government next to the Chinese, Indian, and European governments. The US Government really screwed up. Foreign individuals are much better educated. Maybe near a billion people in India, and a billion in China, all better educated on the whole. America invested in the state, not the individual. The state is owned by the few in the bourgeois aristocracy, who are greedy kleptomaniacs.

So, since the ability to perform valuably in the skills of health and engineering are projected to predominate in the future, watch both the Chinese and Indian populations go beyond parity with the US with respect to quality of life, as currency itself is a commodity that is beginning to be regulated by a highly aggressive, globally competitive, macroeconomic market. If India is a good place to live, since I'm a computer programmer I can migrate there. US currency is then without me. If Europe is the best place to live, I can migrate there. Those without some preponderance of talent in their skilled profession are about equal everywhere, whether or not they move to a new country.

Medical care is provided by a competent doctor. A software program is provided by a competent computer programmer. An airplane's fuel system is provided by a competent aerospace engineer. You can't buy these things, when you think about it. Unless the doctor is the type of guy who will heal you, you're going to be sick. Unless the computer programmer can actually write software that works, your program is just a ripoff of somebody else's work that doesn't conform to spec. Unless the aerospace engineer performed the right analytical calculations applying physics to fluid dynamics, your jet won't fly beyond a certain altitude without breaking up in mid air. And to whole of members of all these professions, the commodity of currency can never buy you more than the immediate surrounding quality of life provides for.

2007 Oct 29 04:48 PM

[Rosooki:]

What a nut.

2007 Nov 11 07:51 PM