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.

How Can You Benefit from the Coming Chinese Economic Collapse? PPT

When the investor reads the news he or she is always on the lookout for information that will provide an advantage in buying, holding, or selling investments. However, much of what is written attempts to provoke fear or greed or both. In a lot of “big picture” articles the author attempts to elicit a gut response from the reader that will keep him or her glued to the page and coming back for more.

The current articles that basically say that China is buying up lots of property and US assets sound very familiar as they mimic the articles at the end of the 1980’s when Japanese investors bought Rockefeller Center, Colombia Pictures, and the Pebble Beach Golf Course.

This is not to predict that the Chinese economy will go the way of the Japanese economy with a decade of stagnation but everyone has their problems, including China.

The point, when reading articles about other investors is not to be greedy or fearful but to look, dispassionately, for information and clues about what you can buy or sell to improve your own investment portfolio. If buying REIT’s is such a good deal that the Chinese are putting their money into them then maybe you should do a little research and invest too. If the Chinese have too much cash and are looking outside of their country for investments then maybe they know something that the West doesn’t know. If things are so great in China why buy assets in the West?

Regarding REIT’s they were introduced in China a couple of years ago and are popular so if REIT’s work at home (China) why not invest in REIT’s in the USA too?

The US has problems with it huge federal deficit. US monetary policy is often captive to dealing with the huge federal deficit and may lose flexibility therefore.

What to keep in mind when reading investment pieces about Chinese investments, monetary policy, federal deficits, and the like is that your are looking for information useful to you in your role as an investor. Getting worked up over politics is your right and mine in a democracy but getting worked up over politics, the investments of others, has little to do with finding and managing good investments for yourself. That includes Chinese investment in REIT’s in the USA or US investments in Chinese REIT’s for that matter.

Where the growth will be is where you want to invest. Where the stability will be is where you want to invest. If US monetary policy and the federal deficit have made it so bad for the USA investor, look offshore. However, if prospects and prices are so bad here then why are offshore investors buying REIT’s here instead of REIT’s there?