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?

The share prices in worldwide stock market went up in the past 2 weeks. As an investor, I should be very happy with the capital under my management fully invested in US and HK markets. However, it’s China again. Although we only allocate a small portion of our capital to invest in the China A shares, we had only invested even much smaller portion before October.

Have we missed the party? Many people may regret for not plunging into the market earlier, or at least feel itchy to get into it now. I don’t think so. The Chinese economy is still in serious uncertainty at best, considering the huge property bubble and lacking of purchasing power in ordinary Chinese people. The fundamentals have not changed over the so called National Day. The bubble popped up by the inflation and speculation on the RMB exchange rate will bust at any time. However, it seems that the governments around world are all determined to print more money and a worldwide inflation is almost inevitable, especially if the Chinese government keeps the interest at such low level. Investing in natural resources should be a good idea under such circumstance, as many investors have been doing. I personally don’t like the idea because the commodity prices are largely decided by the world economy, while the economy is very hard to predict. Investing in good business is always a good idea, no matter in good or bad economy. A good business can not only survive a recession, but also grow stronger in a recovery.

There are many professional investors talking about the low valuation about the Chinese A shares recently. They even compared the price of H share or B share of the same company with its price of A share, and discovered that the A shares of certain companies are cheaper than their counter part in H or B share market. Therefore, the pros declared that A shares are cheap and the Chinese investors are again immature. It seems that they are right with the surge in the A share market on the 2nd day today.

Well, you can not just rely on the economy figures from the Chinese government to make your judgment on Chinese economy. If you had friends living and working as a slave of their properties, or you had taken a ride recently on the very new high speed train and realized that the train had been transporting chairs instead of passengers, or you were receiving promotion materials selling properties desperately located in some ghost town in your email box on weekly basis, you would not agree with these professionals.

China economy was sick even before the financial crisis from the US. And it’s now in a more sever condition now due to last year’s government policies. The policies and money were mostly aimed at creating an instant surge on the GDP, not on the health of the over all economy and well-being of its people. It was like a very sick man being given a Viagra and suddenly he’s up. And ladies desperately missing an orgasm were all cheering. However, a sick man shouldn’t have such erotic actions based on our common sense. It only made his health worse! Now, the effect of Viagra is over. He looks like shit!

With these in mind, the prices of A shares in general are still not cheap enough to cover risks of a property market crash, very likely defaults of local government loans, a possible banking system melt down and some unexpected skeleton in the cupboard.

All investors have Greek crisis in their mind now. But Greece is a small economy. The serious impact to the world economy will come from China. And this time it will be serious and real, because China economy took the wrong medicine in 2009, which made the desease worse. It will be a world full of uncertainties in the next 2 years. Well, there will be still opportunities to invest. Focus on business!