As the Chinese economy slows the value of that nation’s currency is falling. Investors are taking their profits from decades of spectacular economic growth and buying property and starting businesses in the West. This capital flight has set up downward spiral as investors convert their Yuan to dollars, yen or euros driving down the value of the Yuan. Other investors seeing the prospect of an ever weakening Chinese currency follow suit and move capital out of China. Our take is that China may well be heading for an economic collapse as investment capital shrinks and companies that borrowed heavily betting on eternal economic expansion go bankrupt. From the viewpoint of a Western investor, how can you benefit from the coming Chinese economic collapse?
Time Is Running Out
The Telegraph quotes the managing director of the Institute of International Finance in Washington as saying that in regard to capital flight, time is running out.
China is rapidly losing the confidence of global lenders and capital outflows risk turning virulent if the current policy paralysis continues, the world’s top banking body has warned.
Mr Collyns said the authorities have so far failed to articulate a coherent strategy, and there are serious worries that outflows of capital could accelerate, broadening into a flood beyond Beijing’s control.
Mr Collyns said China has already allowed the renminbi (yuan) to weaken against the country’s new trade-weighted basket of currencies, stoking suspicions that the recent shift from a crawling dollar-peg to a more opaque foreign-exchange regime is really a cover for devaluation.
The IIF, the chief global body for the financial industry, calculates that capital outflows from China reached $676bn last year.
The article mentions that by whatever route capital leaves China it ends up in places like the London property market. In fact, wealthy Chinese are buying property in major cities across the globe. As China throws money at it stock market in order to stop plunging stocks analysts are concerned that the nation could burn through much of its $3.3 Trillion in foreign currency reserves creating havoc in the land of managed capitalism. So, how can you benefit from the coming Chinese economic collapse?
Follow the Money
If the people who made money over the decades during China economic rise are bailing out this is probably not the time to invest in China. If you follow the money you see that money flowing out of China is going into high end property. You could buy a condo in Manhattan, the near North side of Chicago on the lake, or London or you could invest in a REIT, a real estate investment trust. A recent Forbes article discusses REITs to buy.
As a rule of thumb I usually recommend stalwart REITs that have a long track record of paying and increasing dividends . It’s really hard to go wrong with companies like Realty Income (O), W.P. Carey (WPC), National Retail Investors (NNN), and Omega Healthcare Investors (OHI) – all of which have demonstrated exceptional risk management practices through multiple economic cycles.
Our thought is that you can benefit from the coming Chinese economic collapse if you follow the money that is flowing out of China.