2010 is the most difficult year I had went through as an investor. The only certain thing about the economy in 2010 is uncertainty. As I mentioned in my last article “Is this party time again?” China is still facing the same economic problem and the share market performance after the National Day is well reflecting such dilemma. Fortunately, I had invested mostly in US companies in last year and still got a 19% return on my portfolio.
At this very beginning of 2011, it’s again very difficult to predict the economic picture of the whole world. The key issue now is not US unemployment, neither government debt in certain European countries. It is China’s run-away inflation and “burning” (hot is not the right word now) property market having the potential power to suck everyone into another crisis. Why?
Based on the analysis of some reputable economists in China, the actual inflation figure could be double of the official CPI announced by the Chinese government. That means the actual inflation rate might be at 8-10%. While the one year fix deposit rate is at 2.75% now, inflation is still having a long way to go. A “burning” property market means that almost everybody believes that it’s the very place to make BIG and QUICK money, including small enterprises in Wenzhou to public companies like Haier and Lining. I just cannot find a better word than “burning” to describe the situation.
With these risks in mind, the Chinese share market is not cheap in general, especially for those good businesses, which have the pricing power in their own market and will certainly survive a likely bust. Anyway, with a likely bust of the Chinese economy in mind, it’s still a tough year for investors. I will try hard not to look at the economy in general, and focus on the economy of companies.