More on China's Banks, including comment by Mark Mobius -- Bloomberg

I've blogged recently about banking in India, touching on China and Japan. Here's more. It's a good meaty article:


Bloomberg.com: Exclusive

It's business as you would expect in developing market economies. knowing what it's like should be part of how you allocate foreign investments, just about however you approach constructing your own portfolio. Generally, you should be careful. Hold down the amount of your money which you so invest to a reasonable level.

An Banking Epiphany? Is Banking a Pan-Asian Weak Link?

Well, it came to me as I looked at the linked article, below. No, I'm certain it is old knowledge among those who follow international banking news.

India's banks: nationalized, inefficient, molded by the government into agents of social change, holding back development, per this article.

Japan's banks, so notoriously "close" to their corporate customers (do you remember "Japan, Inc."), with low-or-no economic growth, so who knows how many bad loans there really are....

China's banks, same story, requiring multiple rounds of additional capitalization; again, who really knows how bad their loan portfolio really is....

The recurrent theme is not one of strength: it is of problems, problems, and more problems. Problems in Japan's banks, in China's banks, and in India's banking industry. They certainly can manufacture. And they can build. They believe in work. Can they run their banks? Will they allow non-performers to fail? They are not exactly awesome engines of economic growth. Whatever our problems, and we have plenty, that is not one of the biggies. I guess it comes with being a "developed" country with relatively less central planning. It is perhaps one of the starkest economic contrasts between East and West, and may have a great impact on how well the 21st century will play out for Asia. Will the promise of the East's most important countries be fulfilled? If it is fulfilled, how wild will the volatility be along the way?

That is why this is significant to investors. We are, as a group, putting more of our money into foreign developed and emerging markets than we have in the past. We are looking for diversification of returns, and for ways to hitch our wagons to high-growth economies. A bumpy ride is OK, even expected, but we watch intently for clues to how bumpy it will get.



An antiquated banking system holds back development in India - International Herald Tribune

Amen, sister, II: Bloomberg's Baum has a few more apt words on China

Bloomberg.com: Opinion

I concur: "China's stock exchange has more in common with a casino than a marketplace." More, "China's market lacks transparency and is fueled by rumor and speculation."

A caveat: (she writes:) "Chinese investors have gone back to doing whatever it is they do, which is buy stocks. With increased distance from the events of last week, U.S. investors are starting to look at their own house of cards, not to the roulette wheel that is China's market." Now, I would not refer to the US market as a "house of cards". It isn't. A sad blemish on an otherwise excellent article.

Another Take on China: TCS Daily - "Our Siamese Twin"

You know, I think that over the last week the future for China has been more on my mind than the markets' movement. In a few months this last week will be just noise, probably. In the long run, there are much more important things to think about! It's true. We (the US and China) probably have more interests in common than we have figured out.

The Chinese banking system is a real concern. Much has been written about that. At this stage of my practice, for the foreign component of the portfolio, I don't really like country-specific investing; I want quite a lot of diversification, even now when we have such high correlations. And I want the ability to control value/growth and capitalization size characteristics in foreign holdings. Just my style I guess. You can imagine how I feel about investing in the stocks of individual companies!

But I won't say never on that, or single country ETFs or funds either. To everything there is a season, as has been said. China is getting big, will be very volatile, will have high average growth, if they do not mess it all up. We, mankind, are very prone to that. Some humility is in order. An article I found useful and thought-provoking from TCS Daily....



TCS Daily - Our Siamese Twin

Yahoo Finance: "Financial world braces for huge Chinese investment fund"

So, are the interests of a 1,200 lb. gorilla somewhat aligned with ours? If wisdom prevails, yes they could be. How do you make someone a true capitalist? Make him a trillionaire, with responsibilities to match? That should do it.



Financial world braces for huge Chinese investment fund - Yahoo! News

The Markets Today -- A few Thoughts on China, and the USA, Mostly

It's interesting. The drop of the Shanghai Composite Index should be no shock, as it has been going up so fast for so long, looking ripe for some possible downward volatility. So we have some. What's important about this? Volatility happens. Speculators lose money, mostly. I really believe that what is most important is long-term in nature. I would hope that if China is fortunate enough and its leaders wise enough to avoid messing up their great possibilities, (and I think they may be,) this century can be the beginning of a golden age for China and indeed, for many of the emerging market nations. But human history show us that the leaders of great nations are too often not much wiser than the rest of us.

There have always been spectacular downs as well as ups -- much volatility -- as market economies mature and grow stronger.

Consider Hong Kong, over the last forty years. Mark Mobius' book, Mobius on Emerging Markets, has a discussion of the huge volatility, the sustained very high economic growth rate, and the great rewards in terms of investor wealth which came to patient, careful, (dare I add diversified) investors. Hong Kong can be the model for even a huge nation like China.

So what would I, an individual American, hope to see from China over the rest of my lifetime? Economic growth and freedom, and a sense of responsibility to handle well the marvelous possibilities still opening up before the eyes of the world. It would seem to me that there is no need at all for aggressive, substantial expansion of military forces. Or for forceful resolution of the Taiwan issue. I am far removed from a position of influence, but my friendly counsel would be to seek all possible ways to defuse tensions, strengthen trust, reward that trust well, and to build on the many things which are shared between them, cultural and otherwise. I would think it would be very wise even to unilaterally renounce the use of violence against Taiwan. Peace, shared prosperity, and a genuine sense of enduring brotherhood are the best ways to bring people together. If Germany can be peacefully reunited, so can China someday. So can Korea, for that matter.

Chinese investors would be very well rewarded for avoiding speculative behavior; that is not a good way to build anything. they should seek ways to invest patiently, in well-diversified ways, at minimal expense, and also invest globally. While I am not expert on the details of the matter, I understand that there are limitations on the ability of small China investors to invest in the securities of other countries. I would hope that the need for such limitations would recede.

On the US markets today. I find remarkable the behavior of the traders, who take something like today's China market news as an invitation to, well pardon me, but to start trying to take the other emerging markets, the US and other developed markets down as well. There is no rationality visible in this, at least to a much less tactically-oriented fellow like me. If you are irrational enough to think that you can out-trade all the other nuts, er, speculators out there, I guess you just do not need something like a reasonable basis for all that buying and selling.