China: A Better Investment

Robert Hsu, February 23, 2009

The past few weeks have definitely been ones for the history books. Economies all over the world are facing possible recession, and governments are trying everything to keep any more economic distress at bay.

Just look at the situation here in the U.S. The U.S. government recently passed its second major stimulus package in the hopes of shoring up the economy. I believe that besides China's $586 billion stimulus package that is currently being implemented, the U.S. stimulus package is the most important fiscal policy in combating against global recession. That's because the passage of this stimulus package could greatly impact the U.S. and global economy.

The bill includes billion of dollars in tax breaks and transportation infrastructure projects. In addition, the unemployed would receive an additional weeks of unemployment payments and healthcare subsidies. While the tax cuts in the stimulus bill will help the economy, I think that they will have limited impact on the financial markets since most of the tax breaks are designed to help people without significant capital.

As I expected, after the bill was passed, the U.S. stock market rallied, but then quickly fizzled. And it has only continued this fizzle, as the Dow and S&P 500 tumbled today to levels not seen since 1997. The Dow fell 3.4%, while the S&P 500 lost 3.5%. And the NASDAQ dropped 3.7%.

These steady daily declines are surefire signs that investors are concerned that the government's efforts to slow the U.S. recession won't be enough. Unfortunately, I think the declines and volatility in the stock market will continue until we see some solid positive effects of the stimulus. Similar to when the U.S. government implemented the most recent bank bail out plan late last year, only time will tell if this bill will have a significant impact on the U.S. economy.

This is yet another reason why we should be focusing our investments on China–an economy that is faring well, especially compared to other countries. While questions still linger about the viability of the U.S. stimulus package, China's massive stimulus package is already starting to show positive effects in the country's economy. The infrastructure projects are increasing domestic investments, and other measures in the plan are boosting consumer spending.

And as the year goes on, China's economy will continue to improve because of the early and aggressive measures taken by China's government with its stimulus plan. I look for China's economy to start a meaningful turnaround in the middle of this year. And by the end of 2009, it will likely be on the fast-track to recovery. I even look for China to be one of the few countries to post a positive–and impressive–GDP growth rate this year, of around 6% to 7%.

So to profit from this trend, we have invested in the top companies that are profiting from China's stimulus package. In fact, we added an infrastructure play in late November, and already we have a 49% gain. As more infrastructure projects pop up as a result of China's stimulus plan, this company will be at the forefront of supplies–which means more profits for us. To find out more about this company, and my other China Strategy picks, become a China Strategy member today.