To have any hope of getting your head around China its important to understand China’s motivation. In our view their drivers are to industrialise, create employment and sufficient infrastructure to create a sustainable economy for the long term.The difficulty for China is that to industrialise it requires 20-40% of worlds natural resources, EVERY year. There are always poor times in markets which create price lows in commodity markets. Some of these aren’t manipulated – but many are. China has made an art form of using these down times to buy strategic assets and create stock piles for the future of the country.
China is a juxtaposition of a command based versus market based economy where patriotism will always win. To grow it doesn’t need the world being too strong (or too weak) – its a fine balance.
One of the only countries that benefited from the GFC was China. It wants to be No. 1 – a Superpower. It has a need to buy assets/products/commodities. It is confident of its own future and can put nation building first. China continues to buy companies, mines, commodities etc with cash.
China wants to be No. 1
By maintaining a large investment in the US and by keeping the US Dollar relatively high China can profit, industrialise, create physical security, and assert superiority. These investments take away the US trump card – the threat of the Military. There is no way that the US can have China as its major creditor and use the threat of military action. The financial implications of China calling in its debt are unbearable. China wants to be No. 1
Leadership in China has evolved into a pluralistic society where the needs of the people are taken into account. But only those companies who act in alignment with the government are rewarded.
Western logic in an Eastern dominated World
If we are right and a company will do as a nation bids then nothing is as it seems …. Economic rationality simply doesn’t work. What hope has an analyst got to analyse a company’s prospects where any interaction exists with China ? What is the future of fundamental analysis ? On what basis will world markets operate?
It is a challenging environment, specifically for those who invest the old way ie using traditional fundamentals. Since the GFC this method has been outdated – the bother is that most haven’t worked that out yet.
What do we do?
At pivotal times, knowing when to sell is invaluable. We follow the changes in our Pythagoras Investment Timing Indexes. They offer a mathematical understanding of the stock market through volatility, which show that price sensitive events are predictable from changes in Volatility (i.e. in advance of price moves). These changes lead to buy/sell recommendations.
We recommend a sell when the market/stock is at risk of going down, or no-where. At these times we recommend investing in cash, and await the buying opportunity. When the market/stock is less risky, and it’s going to go up, we reinvest to profit.
Conclusion: The key to making money is selling.
The key to making money in any market is selling before any negative event. Pythagoras generates the sells before the events with share price effects – its proactive not reactive.
Investors know it’s rare for all stocks to go down all the time, all at once. Even in a bear market there are upward moves to profit from – if you have the right Buy/Sell recommendations.
Therefore Pythagoras can make money in any market regardless of the investment environment – in fact its best in the tough markets. We worry less about the events and their timing and focus on Volatility changes. At Pythagoras we follow changes in Volatility which precede the events. This places us at the forefront of investing.
Disclaimer: The information in this document (“Information”) is not intended to constitute advice. It is for general information only and does not take into account your individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and seek professional financial advice before relying on or making investment decisions based on the Information. Investment products are subject to risk including the loss of income or capital invested. Past performance is not an indicator of future performance. Neither Pythagoras Investment Timing Index Pty Ltd ACN 147371113 (AFSL 431 238), its directors, employees and representatives (collectively, “Pythagoras”) warrant the accuracy or completeness of the Information. To the extent permitted by law, Pythagoras disclaims all responsibility and liability for any loss or damage of any nature whatsoever which may be suffered by any person directly or indirectly