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Steve's note: My first "investing" trip to China was back in 1996. As I write, more than 20 years later, I'm in China again with my research team and a group of subscribers (many of whom are visiting for the first time).
The changes I've personally seen in 20 years are truly extraordinary... If I hadn't seen them myself, I wouldn't have believed they were possible. And for all these years, my biggest influence in understanding China has been investing legend Peter Churchouse.
Peter is once again bullish on local Chinese stocks... And the folks on our trip will get to meet him later this week. He recently shared some of his early stories about investing in China in his excellent publication, The Churchouse Letter. With his permission, I'm sharing one of them with you today...
My Hands-On Experience With China's Market 25 Years AgoBy
Tuesday, June 6, 2017
Here's when it all began for me...
In 1993, my boss at the time – Morgan Stanley's legendary investment strategist Barton Biggs – and I led a tour of institutional investors (mainly from the U.S.) to China.
The investors included some of the largest and most well-known fund managers in the U.S. Many of these legends are still in the business, many times wealthier now than they were then.
But at the time, U.S. investors were far behind the curve when it came to investing in Asia, compared with their British and European counterparts. And Barton was a master of bringing Asian opportunities to U.S. investors...
Barton was truly a legend in the world of global investment strategy. He was Morgan Stanley's global investment strategist – a role he created for himself – for nearly 20 years. He was one of the earliest analysts to bring attention to the extraordinary opportunities arising in China and emerging markets in the 1980s and 1990s.
What I remember in particular about Barton was the amount of research he consumed. He read constantly – on the treadmill, or walking through the office.
He produced a two-page research article that he published nearly every week. We didn't have readership statistics in those days, but I believe it was the most widely read research piece on Wall Street, and deservedly so.
As an analyst, he was deeply skilled at distilling lots of complex ideas and presenting them in an easy-to-read format.
His reputation meant he could open any door in the U.S. funds-management industry. And in the early 1990s, when we walked through those doors, he talked about China and emerging markets.
As Morgan Stanley's regional strategist, I was co-leading the 1993 investing tour to China. My role was to fill in information gaps and provide color and personal insights from my years in China and Hong Kong. I'd been living in Hong Kong since 1980 and traveling to China since the mid-1980s.
So my job was to share my observations on the economy and emerging investment opportunities in a country that was just beginning to take its first steps on the global financial stage.
The tour's opening dinner was held at the Peace Hotel in Shanghai.
A group of Chinese government officials from various local and national authorities joined our investor group, along with various bank luminaries. This event was a big deal. I believe it was the first major delegation of foreign investors that had visited China like this. There had been industrial companies looking to build factories, or companies looking to crack the Chinese market for their businesses. But this group was different. They were financial market investors, and they collectively represented an enormous pool of capital.
I could tell the Chinese officials were intrigued to meet and rub shoulders with these titans of finance.
Before the first course was served, Barton asked each fund-management company to have a representative stand up and give a brief 30-second introduction about their company and what they did.
Around the room, there were some seriously heavy-hitting asset-management firms. We had Capital Group, Fidelity, Julian Robertson's Tiger Management, Trust Company of the West, Soros Fund Management... the list went on.
As each representative spoke, I tallied up the collective assets under management represented around the table. It was around $3 trillion.
I could tell that some of our Chinese officials were adding the numbers just like I was. But some element to their assessment was "lost in translation." Given the exuberance of their reactions, I think they had the impression that these guys had $3 trillion to invest just in China!
That was certainly not the case. And at the time, it was impossible for them to have any stock market investment there at all.
The Chinese stock market had only opened for business in Shanghai in 1991. And it certainly was not open for foreigners to invest in.
But that dinner at the Peace Hotel represented the beginning of a huge awakening in the American investment community to the gargantuan opportunities that were bubbling forth in China.
The events of the week included company visits, meetings with government bodies, and visits to sites, projects, and factories. These efforts were on a scale that was unthinkable in Western economies. Hundreds of residential tower blocks and vast offices were under construction. So were new railways, airports, roads, freeways, and factories.
At the end of the visit, everyone left impressed. Most were astonished at what they had seen. This was an epiphany for some of the most influential money managers in America.
On our return to the Hong Kong office, Barton wrote a research piece on China that included a line that became famous in the investment world:
"I'm tuned in, overfed, and maximum bullish."
He was right to be maximum bullish.
But there was still the problem of how to express this bullishness in the Chinese financial markets. The Chinese equity market was small, undeveloped, highly restricted, and completely illiquid. And as I mentioned, the Shanghai stock market had only opened in 1991. By 1993, it was still not open to foreign investors.
Even now, China's stock markets are still only partially open to foreign investors – despite the fact that their combined value is second only to the New York Stock Exchange.
At the time, the most obvious way to capture this remarkable opportunity was to invest in Hong Kong stocks. Hong Kong was, and still is, a major conduit for investment, business, and capital flowing into and out of China. It was, and still is, a totally open market. Investing in Hong Kong stocks was as close as one could get to investing in China.
Only a few Hong Kong-listed companies had significant direct investments in China itself. But many benefited from the rapid growth that China was going through.
So in his report, Barton recommended Hong Kong stocks as the best way to gain investment exposure to China's booming economy.
Barton's influence on the U.S. investment world was significant. Fund managers and brokers around the world eagerly digested his report on his China visit.
The Hong Kong market had been doing quite well. But following Barton's visit and his bullish report, the market took off...
The Hang Seng Index (Hong Kong's main stock index) soared by around 25% in the space of a few weeks.
Regards,
Peter Churchouse
Further Reading:
"This is a crazy anomaly – the biggest anomaly in finance,'" Steve says. Right now, you can profit from a major opportunity in Hong Kong's stock market. It's a chance to find Chinese companies trading at a huge discount... Learn more here: This Great Anomaly Will Go Away Soon – Take Advantage Now.
"If things go as they did in Japan, the upside in Chinese stocks is enormous," Steve explains. Investors saw spectacular gains during Japan's historic stock market boom. Now, China looks like it could be on a similar path... Read more here: Japan's 527% Boom... And Why China Could Be Next.
Market NotesA NEW MILESTONE FOR THIS HOUSEHOLD FAVORITE Today's chart highlights the huge rally in a home-entertainment giant...
Over the past few years, the television industry has seen big changes. Now, with a decent Internet connection, you can watch almost anything online. Last month, we covered four stocks that have driven huge technological shifts in the ways we shop, socialize, and consume media. But today, we'll focus solely on one company... Netflix (NFLX).
Netflix is an alternative to traditional cable. The company uses the Internet to "stream" its content on demand to millions of homes worldwide. And over the past few years, its subscriber base has exploded. In 2007, the company provided its services to around 7 million subscribers. But in April, Netflix reached a new milestone... 100 million subscribers. That's a massive 1,300%-plus spike.
As you can see, NFLX is in a steady uptrend. Shares recently broke out to an all-time high... and have risen nearly 65% over the past year. We can expect Netflix to hit many more milestones as the shift to online streaming continues...
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