The new Chinese leader, Xi Jinping, signed a Russian Chinese energy agreement set to provide the still-growing Chinese economy with oil and natural gas for years to come. China has worked hard to secure sources of energy for its economy for years. The thriving Chinese economy and large cash reserves have been indispensable in the success of these efforts. The most recent Russian Chinese energy agreement links the first place producer of oil and natural gas with the fastest growing consumer of energy. The Russian Chinese energy agreement also secures for Russia a larger share of the Chinese market, reducing Russia’s reliance on Europe as their main consumer. Although the fundamental analysis of related investment opportunities may be tricky in Russia and China due to poor transparency, there may still be the ability to make a profit for those who pay attention.
Cash Flow from West to East
Think of it this way. China sells products to Europe and North America, and the rest of the world. China runs a big trade surplus. China spends its money on a big Russian Chinese energy agreement. China takes energy supplies away from Europe. In addition, the Russian Chinese energy agreement includes joint oil exploration efforts offshore from Russia.
Price, Always Price
According to press reports, all is not well with the Russian Chinese energy agreement. There are smaller nations across the globe where China can gain oil, natural gas, and other resources a bargain basement prices in return for loans and foreign aid. However, Russia still has a larger economy to sell energy products to, Europe. According to press releases the Russian Chinese energy agreement has been agreed upon in its general terms. But, price is still an issue and not all projects may come to completion as the old communist allies haggle over price like the capitalists that they have become.
Just Two BRICS out of Five
The shape of the world to come is changing. Brazil, Russia, India, China and South Africa are collectively known as the BRICS nations. They have strong and growing economies that are expected to eventually reach the level of both Europe and North America. Gone are the days when first the Europeans and then the Americans dictated terms for economic agreements across the globe. In both of our articles, Three Good Offshore Investment Ideas and Investing in Foreign Stocks, we noted the opportunities of investing offshore. The new Russian Chinese energy agreement is only one example of economic activity and investment opportunity outside of North America. The fundamental issue in investing in these situations is learning and understanding the fundamentals. Because many investors do not speak Russian or Chinese, it is often more efficient and profitable to invest in Western companies that do business in these regions of the world or to invest in foreign stocks listed as American Depository Receipts on US stock exchanges. Such investments can be directly related to big news issues such as the Russian Chinese energy agreements or more often related to the rise of a significant middle class in China, Russia, India, Brazil, and South Africa.