Interview with Jim Rogers, Part II: China as World’s Best Long-Term Profit Play

VANCOUVER, B.C. - Despite its many problems, China remains such a strong long-term profit play that giving up on that country now would be like selling all your U.S. stocks at the start of the 1900s - before America created massive wealth by evolving into a world superpower, global investing guru Jim Rogers said in an exclusive interview with Money Morning.

[READ PART 1]

During a 40-minute interview during a wealth-management conference in this West Coast Canadian city last month, Rogers also said that:

• The anti-travel policies China has put in place to reduce gridlock and slash pollution during the Summer Olympic Games may actually have created a “bottom” in China stocks - possibly creating a great entry point for long-term investors.
• The 34-day worldwide Olympic torch relay leading up to the opening ceremonies likely re-awakened China’s deeply felt nationalism - which will be key as that country strives to build demand for its domestically produced products.
• The country must still deal with such problems as pollution, rising inflation and an overheated economy.

A long-time China bull, Rogers first made a name for himself with The Quantum Fund, a hedge fund that’s often described as the first real global investment fund, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor’s 500 Index climbed about 50%.

It was after Rogers “retired” in 1980 that the investing masses first really got to see him in action. Rogers traveled the world (several times), and penned such bestsellers as “Investment Biker” and the recently released “A Bull in China.” He also made some historic market calls: Rogers predicted China’s meteoric growth a good decade before it became apparent to everyone else, and he subsequently foretold of the powerful updraft in global commodities prices that’s fueled a year-long bull market in the agriculture, energy and mining sectors.

Rogers’ candor has made him a popular figure with individual investors, meaning his pronouncements are always closely watched. Here are some of the highlights from the exclusive interview we had with the author and investor, who now makes his regular home in Singapore:

Keith Fitz-Gerald [Q]: There’s a lot of talk that the Chinese will use the Olympics to launch a new wave of nationalism and to move ahead. Are the Olympic Games as relevant as some people think?

Jim Rogers: They’ve already got tremendous nationalism. But the international reactions about Tibet and the Olympic torchbearers re-awakened it.

And the politicians, of course, need it because they’ve got their own problems with inflation and overheating and [pollution and] the rest of it. So, like politicians throughout history, they fan it - do their best to say: Hell, it’s not our problem. It’s the evil farmers. It’s the French. See that store over there: It’s their fault. It’s the Americans.

So that is happening, anyway.

As far as the Olympics themselves, they’re irrelevant.

America had the Olympics in ‘96 and it had no effect on the American economy - before or after. Some people in Atlanta were affected before and after. And some people who were involved with the Olympics were affected before and after.

America at that time had 270 million people. China’s got five times as many people, and it’s a much bigger country geographically.

Sydney, Australia had the 2000 Olympics. It had virtually no effect on the Sydney, or on the Australian economy - even though Australia had 18 million people. It’s tiny … nothing. Yes, it had an effect on some people.

Greece, in 2004, had the Olympics. You haven’t heard stories of a major collapse or a major revival of Greece in 2005, because the fact is that the Games didn’t have much of an effect - not a noticeable effect, anyway. It had spot effects only, so I ignore the Olympics as far as the Chinese economy - and its stock market - is concerned.

[Q]: Are you still bullish on China?

Rogers: Oh, yeah. I never sold anything in China. In fact, I bought more. I bought Chinese Airlines [PINK: CHAWF] last week. I flew one coming here. Maybe I made a mistake [with the investment], because it was emptier than I thought it would be.

[Q]: Any thoughts why?

Rogers: One thing, you know, is that China’s made it extremely difficult to get a visa right now. In the past, it’s been hard to get a seat because Chinese airlines were so full. On this flight there were empty seats.

That brought home to me that they are cutting back enormously on visas right now. Discouraging travel, trying to clean the air, trying to protect against somebody blowing up the Forbidden City, et cetera. So the fact that planes are empty right now may be smarter than I thought.

Maybe I did get the bottom on the airlines, because if they are going to reissue the visas again, after all this, after September [after the Olympic Games have concluded], then the planes are going to fill up pretty quickly again. I would have picked the stock up at a bottom.

[Q]: Yes.

Rogers: Anyway I’m still around China. I have never sold any of my Chinese companies. You know, selling China in 2008 is like selling America in 1908. Sure, let’s say the market goes down another 40% - so what! You look back over 100 years, you look back from the beauty of 1928, or even 1938 [in the depths of the Great Depression], and there is somebody who bought shares in 1908. He was still a lot better off having not sold in 1908.

Original post

Comments

[Vermont Trader:]

"Sure, let’s say the market goes down another 40% - so what!"

that's what these guys always say until it actually goes down 40%. then they aren't so sure..

2008 Aug 21 11:07 AM

[JasonC:]

Um, the Shanghai composite index is down 60% since last November. Already. And he is saying it.

Glad I *didn't* buy last November, when he was saying the same thing.

2008 Aug 21 01:00 PM

[Chris B:]

The big US 1908 vs. China 2008 difference is communism. Sure, the US had corruption problems in 1908, but China in 2008 is also a one-party communist country engaging in a 20 year experiment with market economics. Who is to say that during the next severe recession (which market economies always have) they will not return to their ideological roots and confiscate western assets? Who is to say that in the event of a conflict - over Taiwan for example - that they won't just confiscate the shares of foreigners? Nationalism usually ends badly like that. if Jim is right about the US's decline, there will be little disincentive to take our money, as we will be too weak to do anything about it.

If China continues down the capitalist path, which seems more likely, they will eventually have to transition to a multi-party system. How do you suppose that will work out?

I'll take India...

2008 Aug 21 01:10 PM

[20smoney:]

It's "China Week" over at 20smoney.com

2008 Aug 21 02:42 PM

[SoCalsurfbum:]

I would add to Chris B's comment that the culture and temperament of the 2 countries are vastly different.

America in 1908 had a lot of inventors, big thinkers, a developed financial system, room for expansion and a lot of untapped natural resources. Combine this with a competitive, battle tested, entrepreneurial do it on your own mentality with lighter regulation… and you get a boom town.

I have a lot of Chinese colleagues and it is a lot different over there. Name the last major invention or innovation that came out of China... you can't because their system is not set up to nurture innovation.

When a Chinese, Indian, (place nationality here), is an innovative thinker... they tend to move to a country like the United States that has a system in place where their accomplishments will be fostered, recognized and rewarded. If you look at all of the geniuses in Silicone Valley it looks like the UN.

While the Chinese society is shifting, it has a very long way to go and a lot of baggage to shed before I would compare it to the US...

I think a better comparison would be to Russia of the last decade, where you would be naive to trust the accounting and good luck playing the stocks.

Chinese entrepreneurs have only known one market direction… up. I’ll wait to see how “built to last” this economic boom is when they have to face an actual business cycle. Then we’ll see what the market and businessmen are actually made of.

2008 Aug 21 05:21 PM

[Urbane Gori...:]

As pointed out so succinctly by 'tradermark'... He's worth a ton of money. And as he is, any short term loss would impact him considerably less than it would me. However, as it is such a sure bet, if he'd be willing to lend me a few $Mill, I'd be more than willing to guarantee to pay him back with a healthy interest in say.... 10 years!

Seriously, I agree with him. It's just with my capital level, I'm happier when economies and stocks come off their bottoms, rather than buy on the way down watching my losses pile up... But **knowing** that sooner or later I'll reap my rewards...

jegan ;-)

2008 Aug 21 05:35 PM

[MistaWhite:]

You forget these guys more than likely don't care, because they can afford to purchase million more shares and cost average down enough to not bother worrying.

2008 Aug 21 08:55 PM

[jon h:]

China is a no brainer!!!---I bought petro china at 23---yes it is down over 50%-----but am I complaining at 128----buy china and sleep well---what are u going to buy in the usa---fannie mae???---we will bail them out and just keep spending what we don't have---we gave China our industrial base and they will pass their inflation on to us------

2008 Aug 22 12:42 AM

[Strangewalk:]

Jim Rogers made a killing as a slick hedge fund manager and real estate speculator--one of those guys who leverages and makes money without producing anything while robbing from those who do. The only bet to make in China is medical companies--within 10 years every third person in the country will be in an oncology ward owing to the ghastly pollution (which is getting much worse). China has no water, it can't feed it's people, it has seriously pissed off 300 millions Moslems living on its western frontier, it will soon have the oldest population in the world, and the government is so corrupt that the warlords who manage its rapid fragmentation could teach the oligarchs in Russia a thing or two. By the way, who will the Chinese copy and pirate from in the future?...and two thirds of their economy is based on exports from factories set up by foreigners,,,

2008 Aug 22 01:59 AM

[johnthebear:]

I agree with "strangewalk". Best to keep your powder dry for a while till the commercial real estate bubble is finished all over the world. No one is talking about it, but with higher inflation comes higher interest rates, rising cap rates and lower net income. With the loss of 12 trillion in equities all over the world and growing, we can expect many commercial real estate foreclosures world wide. Got to impact China regardless of how the government seeks to hide the truth and prop up the economy.

I understand that factories are closing, exports slowing and unemployment is growing. The news in China is probably so controlled that the public does not yet understand that they will be a part of the growing global crisis.

By October, I expect to see FXI down another 50%.
They have huge over capacity and I just read that their biggest bank was last bailed out only 3 years ago and is now selling subordinated bonds to raise capital. They say the sale is to have capital available to take advantage of opportunities in our fallen markets, but I suspect that they have loan losses they are trying to cover, rather than mark to market like our banks have done. It looks to me like Mr. Rogers is trying to jawbone the economy into feeling good, regardless of the facts.

2008 Aug 22 02:36 AM

[bearrally:]

300 million muslim? do you see China support Isreal? everybody is eying the 1.3 billion consumers. Just 20% of that consumers become middle class. Japan just reported today that China just beat out the US for #1 export destination. Last month, China beat the US for the #1 spot in internet users, 550 million cell phones.

While we have 40% of American spent more than what they made. Most asian save more.

Anyone that think US banks mark their debt to market should buy him/herself a 9 mm and a few rounds so they can put themselves out of their ignorant. Level 3 asset = stated asset.......

The new law that was supposed to go in effect where US banks need to put their of balance sheet financing (Enron style) back on their balance sheet was moved to next year. Take a wild guess why they did that..... It is unbelievable that 300 million American let a few hundreds of these criminals run their country to total destruction.

2008 Aug 22 03:15 AM

[Philman:]

I am sorry to say that there is more white collar criminal activity going on in America, than in China, right now. Sure, America was once a great nation, and, in China, the corruption is more "in your face." However, if the crash of the gold market, engineered by the manipulators, with CFTC looking the other way, is any example, the corruption in America is greater than in any other part of the world. That being said, I love America. It is my country, and I want to see reform. But, how can we stand against the American & British oligarchs of New York & London, who've learned to corrupt every financial market in the world, from Shanghai to Mumbai!

2008 Aug 22 05:11 AM

[investor88:]

Jim says China is promising like America a hundred years ago; it appears logical when you see China growing at double digit rates. However, when the Chinese stock market drops 60% in a year it is a signal that perhaps all is not well and thus we cannot simply dismiss those who say the China bubble will burst. I would rather observe carefully and see how things go in the next quarter or two; meanwhile keep more cash for future flexibility at the risk of underperforming the market.

2008 Aug 22 10:56 AM

[I'm a Sucker:]

The Chinese have a 50% savings rate. Their stock market is small compared to the real economy. The population is educated and adaptable. I wouldn't bet against them at this point.

The difference between the Chinese and the Russians is their business sense. Have you been to China lately. Every neigborhood looks like a China town. There are more small shops / business owners than sands on the beach.

2008 Aug 23 04:33 AM

[mkreisel:]

Whoever said China has 300 million Muslims has absolutely no clue.

30 million is the more likely number.

Get your facts straight before sprouting non-sense.

You have no credibility if you get simple facts wrong.

2008 Aug 23 03:44 PM

[mkreisel:]

Chinese must have 50% savings rate because hospitals will let them die if they don't have money to pay down a sizable deposit!

And there are zero retirement benefits for its 60-70% agrarian population.

2008 Aug 23 03:46 PM

[Strangewalk:]

China has over 300 million Muslims living in countries that border its western frontier, which mostly means Xin Jiang Province. This area was mostly Islamic before being fully absorbed by China. Today, the Moslems living there have had serious restrictions placed on their freedom of worship (children are prevented from entering Mosques until they are 18 years old and their religious services are strictly monitored and required to promote patriotic loyalty to the atheist state), and they are treated as second class citizens by the transplanted Chinese.

2008 Aug 24 07:26 AM

[Mountain Fist:]

I make money because people like most of you sell at the wrong time and don't buy when they should. Every massive stock market move up comes after a period of decline and/or sideways movement. When will you people get that the time to buy anything is when it is undervalued, not when it is going up like a rocket? Betting against China is a fool's bet. Chris B your comments are as futile here as your ridiculous so-called "critical thinking" on James Conrad's gold manipulation article. Thanks for being so dense and always thinking you are right. You make being a value investor in high growth sectors, companies and countries very profitable.

2008 Aug 24 11:31 AM