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DOHA………..READY –AIM- FIRE………. ouch we shot ourselves in the foot.

DOHA………..READY –AIM- FIRE………. ouch we shot ourselves in the foot.

In perpetrating the collapse of the DOHA trade round did India and possibly China shoot themselves in the foot?

Our answer in a word is “probably” for India and “probably not” for China.

We think India’s desire to pander to left leading trade unionists and farmers was very self destructive and foolish. I am told that both India and China — but especially India — disagreed with DOHA farm policy by saying that they reserved the right not to comply if their farmers put pressure on them to subsidize farm prices and disallow the free import of foreign farm products at lower prices.

This is foolish in the extreme and makes us worry about India’s future. Unless India reverses this policy their economic future will suffer a great deal.

They could return to school and review the work of the famous classical economist David Ricardo on comparative advantage they would see everyone should specialize in what they do best.

India is good at technology, outsourcing, pharmaceuticals [generics and now more new drugs], and they could do very well in basic manufacturing.

India is terribly inefficient in farming with small inefficient, antiquated, family plots out of the 5th century BC. There is no way this system can compete with modern farms found in the rest of the world. India’s wish to insulate their farmers from change could [if DOHA is abandoned once and for all] damage the world trade system greatly, while potentially sending the globe back 100 years in prosperity.

Indian farming is not efficient, and their government should abandon their pandering to an archaic system, and let the farming sector enter the modern world. Clearly their tech sector and pharmaceutical sector have done brilliantly in the modern world. India is a country where a large percentage of people live in the present [not only the present but on the cutting edge], and a large percentage of the rural population lives in the world of 2500 years ago. Unless India is ready to do as China has done, and take the plunge to bring the farm sector into the current century and to modernize the national road, rail and utility infrastructure, India will struggle for growth.

About DOHA
I CANNOT SAY THIS MORE URGENTLY …..The failure to continue and grow world trade through the DOHA round and similar trade agreements will lead to a fall in the standard of living of the world as a whole and quite possibly the commencement of a worldwide depression. I DO NOT MAKE THIS STATEMENT LIGHTLY.

Politicians and the public at large do not understand the overwhelmingly important role that world trade has played in current world prosperity. This continued recalcitrance to agree to world free trade agreements and the implementation of politically driven protectionism could derail the world economy fairly easily.

CHINA

China is a different story. China has been signaling for the last 4 months that they are concerned about the stock market decline which has fallen 55% peak to trough as measured by the Shanghai exchange.  We think that the negative and positive news surrounding China will end with the end of the Olympics and we will get back to more economic news from China. Clearly, the last year has been more than a little challenging for China.  They have had floods, snow emergencies, a major earthquake and now the Olympics.

In our opinion, China has dealt very well with these challenges and we anticipate that their recognition on a worldwide basis has been positive, as a result of their ability to rebound from the disasters and to host a credible Olympics. Certainly their venues are beautiful and the country will enjoy respect for a job well done. We have been saying for months that we like China more than India and today that is truer than ever.

MARKET VALUATION INDIA VERSUS CHINA

China‘s stock market has fallen 55% peak to trough versus 35% for India. China’s corporate profit growth is about 25% per annum versus India at below 20%.  China’s forward PE is well below India’s. China’s inflation, while virulent, is lower than India’s. China’s future growth rate in terms of GDP and corporate profits will be at faster rate than India’s in our opinion. We continue to worry about the trade issues surrounding both countries, but are much more concerned about the irrational stances being taken by a large part of India’s power structure. In short, the Chinese are much more practical and will do nothing long term to damage their best interest. They speak with a unified voice. India, on the other hand, harbors many influential sectors, especially farmers, trade unions and local politicians, who are opposed to the national best interest.

SUMMARY

We continue to like food and food related such as fertilizer, gold and energy. Energy stocks have had big corrections and we believe that prices will recover for those companies who can add to reserves at reasonable cost.

We are once again focusing on China after some time out of the Chinese market. The Chinese markets price correction has been a big one and although China’s stock market may not boom ahead, it will do very well for those investors who have a 3 to 5 year view. We have been nibbling on a few fast growing low priced Chinese companies. They are all in industries with low governmental influence on prices and quantities of production. We are careful to buy Chinese companies which have large holdings by Chinese investors, we beware of Chinese companies which trade only in non Chinese countries like the UK or US.  May we suggest that you look at those companies which trade in China, Hong Kong, and other Chinese speaking regions.

Thanks for listening.


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