OT China - An Insider's Review

Investment Analysis Clubs Saul’s Investing Discussions
21

<<little mining companies that are traded over-the-counter and aren’t listed on any of the major exchanges>>

Not exactly. Two (BRE-X and IPM) are miners. BRE-X was listed on the TSE and NASDAQ and at its peak had a market cap of $6B. IPM was listed on the TSE and NASDAQ Small Market. SNC Lavalin is engineering & construction and still listed on the TSE w/market cap of about $10B. And Nortel (aka, Nortel Networks or Northern Telecom)was listed on both the TSE and the NYSE and employed 94,000 people as one of Canada’s largest companies.

You can find good Wikipedia articles for BRE-X, Nortel & SNC-Lavalin. The history of IPM is to be found on “Silicon Investor” web site and in other retrospective articles about Canadian scams.

I brought these to the attention of the bb as examples of large Canadian companies that operated on the wrong side of the law, but not to imply that SHOP is such a company.

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22

Thanks Saul,
Somehow, my message seems to have gotten lost in the weeds. Probably my discussion covered too much ground.

I was trying to paint a picture of modern China under the influence of its ancient culture. I’ve read that China a Persia (Iran) are the only countries on earth with close to 5,000 years of continuous culture (explicitly, I am not referring to political systems). We can argue about whether it’s 5,000 years or something more or less, but that number is in the vicinity.

I felt it important because I’ve seen people over and over again impose habits of Western thought on the Chinese, usually in a negative context. Sometimes, the differences are subtle. I most certainly was guilty of this before I lived there - I’m sure I still am, but at least now I have an awareness of this proclivity.

I’m reasonably confident that the American and Canadian cultures are pretty similar. Of course you can still get burned by unscrupulous operators in North America. That’s true everywhere. But there’s just a different mind-set in China. I’m not trying to assert that no one in China is trustworthy. I wouldn’t say that every Chinese investment is risky. What I was saying is that it’s a lot harder to know which ones are upright (by Western standards) and which ones aren’t based on available information. And the standards of “honesty” are not the same between the West and China. The Chinese are not inherently dishonest. But the yardstick is different.

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23

Brittlerock:
…IMO, there are just too many outstanding investment opportunities elsewhere to expose myself to the risks of investing in Chinese firms.

Ormont:
Stellar analysis… Jeff
(Have been to China a number of times, including nearly a month earlier this year)

How about an investment in Chinese Yuan or Hong Kong Dollars, instead?

There is at least one Chinese currency fund, the WisdomTree Dreyfus Chinese Yuan Fund (NYSE: CYB)

Alternatively (or additionally), the following excerpts from a recent online essay suggest that the Hong Kong Dollar could be an excellent investment, based upon Hong Kong’s fiscal soundness and rock solid balance sheet:

https://www.sovereignman.com/international-diversification-s…

Hong Kong is a rare exception in the world. The Hong Kong Monetary Authority, the country’s central bank, is among the best capitalized on the planet. Plus the government is awash with cash and routinely runs substantial budget surpluses.

Hong Kong has virtually zero debt, and nearly $1 trillion Hong Kong dollars ($126 billion) in net foreign reserves. That’s a public savings account worth roughly 40% of the country’s GDP.

Hong Kong’s Net International Investment Position, which is essentially a reflection of the government’s ‘net worth’ is about $1.25 TRILLION, or 380% of GDP. This is nearly unparalleled. By comparison, the US government’s net worth is NEGATIVE $65 trillion– roughly NEGATIVE 350% of GDP, versus Hong Kong’s POSITIVE 380% of GDP.

One country is broke. The other is a financial fortress. And while the US government’s liabilities keep mounting, Hong Kong’s foreign reserves keep increasing. Between the two, it’s pretty obvious that Hong Kong is in vastly superior financial condition. And that’s what makes the Hong Kong dollar so compelling.

By holding Hong Kong dollars, you essentially get all the US dollar benefit without having to take the US dollar risk. If the US dollar remains strong, the Hong Kong dollar remains strong. The two are virtually interchangeable.

But unlike holding US dollars (where your savings is linked to a bankrupt country), Hong Kong dollars are backed by one of the most solvent, fiscally responsible governments in the world.

So if there were ever a US-dollar crisis, Hong Kong could simply de-peg its currency… meaning anyone holding Hong Kong dollars would be insulated from the consequences of the US government’s pitiful finances.

It’s like having a free insurance policy… which is what an effective Plan B is all about…

https://www.sovereignman.com/international-diversification-s…

I was unable to locate a Hong Kong Dollar ETF in a cursory online search. However, I have in the past held Hong Kong Dollars in the form of an EverBank WorldCurrency™ CD and a WorldCurrency Access™ Deposit account, as described at the following link:

https://www.everbank.com/currencies/hong-kong-dollar

I cashed out my EverBank Hong Kong Dollar CD a couple of years ago, when deflation was causing the buying power of the US Dollar to increase. The pegged Hong Kong Dollar didn’t seem to be more attractive at that time. I didn’t even consider investing in the Chinese Yuan currency products offered by EverBank.

However, now that China and Russia are colluding to undermine the PetroDollar (US Dollar) oil trade monopoly and to create alternative reserve currencies, one questions whether it is wise to hold all one’s cash in the form of US Dollars.

Perhaps Jeff will take a look at the above-linked blog essay and advise whether he thinks the writer’s reasoning is sound.

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Brittlerock and others, thanks for the great posts. In the US, we have always looked at other cultures through our democracy glasses. We continually get involved with cultures that we don’t understand and it always results in disaster for us. Vietnam, Iraq, and Afghanistan come to mind. I hope that one day our leaders will realize that we have to take the democracy glasses off when responding to events in other parts of the world.

Harry

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