China

Buy, Sell or Hold: BHP Billiton is Poised to Pick Up Big Gains on the Back of a Global Commodities Bull

Face it, commodity prices are in a secular rally - and there are three big reasons why.

  • Loose Monetary Policy
  • Growing Demand in Emerging Markets
  • And the Congruent Devaluations of Major CurrenciesWe've already profited from this inflationary trend in the Money Map VIP Trader.  And - just like I did with the broadband revolution - today I am presenting you with a stock that stands to benefit from these developments - BHP Billiton Ltd. (NYSE ADR: BHP).
First, let's talk about policy. Immediately following the 2008 financial crisis, the Group of 20 (G20) countries agreed to stimulate their economies simultaneously.  And, while the emerging economies almost unanimously have already returned to strong rates of growth, most advanced economies are just now turning the corner.

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China, Europe Lapping the United States in the Clean Energy Race

If the United States doesn't take drastic measures to engineer new clean energy policies and investment initiatives, it will continue to take a back seat to China and Europe, which are driving the clean energy market toward a profitable future.

Both clean energy companies and a skilled workforce are heading overseas, where government policies are creating a more welcoming and promising market for clean energy products.

Take Massachusetts-based Evergreen Solar, Inc (Nasdaq: ESLR). In 2008, it used $58 million in government aid to open a new Massachusetts factory to build silicon wafers and cells and assemble solar panels. But in November 2009, it announced the assembly of solar panels would be moved to Wuhan, China, where solar panel manufacturing will cost far less than in the United States.

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China Manufacturing Data Could Presage a Rising Yuan

Manufacturing activity in China and much of Asia continued to expand in March, underscoring the region's role as a driving force in the global economic recovery.

China's official Purchasing Managers' Index (PMI) rose to a seasonally adjusted 55.1 from 52 in February, according to Li & Fung Group, a Hong Kong-based company that releases data for the Federation of Logistics and Purchasing. It marked the 13th straight month the index showed expansion and was in line with the median estimate in a Bloomberg News survey of 13 economists. A reading above 50 indicates growth.

Another PMI for China released by HSBC Holdings PLC (NYSE ADR: HBC) was even more positive, showing a rise to 57.0 in March from 55.8 in February.

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Historic Agreement Ends 40 Year Old Iron Ore Benchmark as Miners Get Short-Term Pricing Contracts

In a historic moment for commodities markets, two of the world's largest iron ore producers, Vale SA (NYSE ADR: VALE) and BHP Billiton Ltd. (NYSE ADR: BHP) signed short-term contracts for record prices with Asian steel mills that effectively replace a 40-year-old system of setting prices annually.

The landmark move by Vale and Anglo-Australian BHP ended the annual benchmark system when they signed new short-term deals linked to quarterly prices on the spot market, with the Brazilian company winning a 90% increase. Another large iron ore producer, Rio Tinto PLC (NYSE: RTP) has yet to sign any new contract, but is expected to soon follow.

The primary mineral used in steel, iron ore directly affects steel prices and the cost of everyday goods, including refrigerators, cars, and washing machines. That made the recent negotiations one of the most important issues for the global economy and commodity markets.

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Indonesia Catching China's Eye

It's an open secret that Indonesia's economy is on the rise. In the spirit of March Madness, it's something of a sleeper.  That's why China, which is always looking for promising new investments, is looking to make inroads there.

Indeed, China's appetite for commodities makes Indonesia - with its close proximity and abundance of natural resources - an ideal partner.

PetroChina Co. Ltd. (NYSE ADR: PTR), Sinopec, Sinosteel, Minmetals and China Investment Corp (CIC) - Beijing's $300 billion sovereign wealth fund - are all aggressively scouring South East Asia's largest economy for takeover targets and joint venture partners, the Live Trading News reported.

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Despite the Near-Record Run in U.S. Stocks, Oil, Commodities and China Will be the Long-Term Winners

Although U.S. stocks have made a fairly smooth transition into Year Two of what's so far been a near-record bull market, there are still many traps that can quickly ensnare a less-than-cautious investor.

Moving forward, investors need to focus on quality, take the time to understand what's really happening in Washington, and turn to such once-unconventional investments as oil, commodities and China stocks, says Money Morning Chief Investment Strategist Keith Fitz-Gerald.

"I expect the markets to remain very fragmented. Volatility will almost certainly increase, leaving investors both psychologically scarred and totally confused," Fitz-Gerald said, underscoring the need for investors to embrace a truly global view. "Fully 75% of the economic activity on the planet now takes place outside U.S. borders. So it only makes sense that investors embrace new ways of thinking in order to avoid getting left behind. At the same time, energy and commodities still have a long way to run - meaning there's substantial profit potential available."

In a wide-ranging interview, the former professional trade advisor, best-selling author and noted Asia-investing expert:

  • Predicted that oil and commodity prices are headed higher, making them "must-invest" asset classes for investors who don't want to be left behind.
  • Stated that ongoing miscues in Washington coupled with higher growth abroad make it imperative that U.S. investors embrace a truly global view when planning their investing strategies.
  • And predicted that many blue-chip U.S. companies will go for dual-listings, listing their shares on China's Shanghai Stock Exchange (SSE), providing those U.S.-based firms with access to the plentiful capital and robust growth available in that Asian giant's marketplace.

For a full transcript of this interview, read on...

Money Morning Mailbag: The Capital Wave That Could Blunt the U.S. Recovery

Question: How can banks justify not giving out mortgage money in light of the fact that they can now qualify their applicants to a level not previously seen? I am talking about literally millions of people applying for loans with 800-plus FICO scores and Loan-to-Value (LTV) Ratios that are better than ever before.

How can banks and lending institutions take our money and then turn around and shut nearly everyone out - which simply prolongs this recession? Can anyone explain why the present administration and regulatory bodies are not forcing the banks to loan monies to qualified applicants?

At this rate, we will be dead soon.   Without borrowing, we will die.  

•  (Signed) Living in Costa Rica

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Money Morning Mailbag: Capital Wave Investing Strategies Spotlight the World's Top Profit Plays

Question: Shah, your article on capital-wave investing was outstanding. In fact, I would love to see a follow-up piece for those of us who are not traders and who are not out and about following the current short-term market trends.

For example, when you talk about the Obama administration's determination to keep interest rates low - this has consequences. What will those rates be in, say, a three-year to five-year time frame? What if the European countries keep having implosions like Greece - meaning that countries like Portugal, Spain and Italy follow suit?

In your opinion, will that eventually sink the euro, or does the Eurozone have to bail out those countries with a plan that's similar to the one that it is developing for Greece? What happens to other currencies in either of these scenarios?

Finally, is it your opinion that China is trying to curtail its growth to keep itself from overheating? Can Beijing successfully continue to do this - or will this blow up in China's face? If you look down the road, say, three to five years, what do you believe the consequences, if any, will be?

Again, Shah, this was a really informative article. I would love to hear your views on what you actually see playing out in each of these areas during the next few years.

Answer: Thank you for your kind words about the article and for taking the time to pose your questions - which are excellent ones, by the way. Let's take a look at them, one at a time...

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Guilty Plea by Rio Tinto Execs Shines Light on Complexity of China's Iron Ore Market

When four Rio Tinto PLC (NYSE ADR: RTP) executives stunned observers by pleading guilty to bribery charges in a Shanghai courtroom, it brought to light the unorthodox and complicated nature of doing business in China's iron ore industry.

Unlike corrupt transactions in other resource-rich countries where customers often receive bribes or kickbacks in exchange for arranging lucrative contracts, in China just the opposite is often the case.

The Rio Tinto executives, for instance, were accused of receiving bribes in return for delivering supplies of highly-desirable iron ore - the key commodity in China's burgeoning steel-making industry.

The four executives admitted receiving $13.5 million (92.18 million yuan) between them in bribes, China's state news agency Xinhua reported, citing court documents. They could face up to 20 years in prison.

But the gist of the story revolves around China's chaotic iron-ore trading system.

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U.S. Loses Crown as King of M&A to Emerging Markets

Maybe U.S. investment bankers are losing their touch.

For the first time since Thomson Reuters began keeping track in 1976, fewer merger and acquisition (M&A) deals were done in the United States in the first six weeks of 2010 than in emerging-markets.

During that stretch, emerging markets such as India, Mexico, Brazil and China accounted for 43% of global M&A volume with $91.2 billion worth of deals. That outpaced the United States, which completed roughly $55 billion in deals, accounting for a 29.5% share.

Surprisingly, Mexico alone did more volume, with 19.1% of the market versus Europe's 17.1% share.

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Google Unveils Another Surprise Twist in China Drama

For the first time in two months there is a new development in Google Inc.'s (Nasdaq: GOOG) feud with China. The search engine today (Monday) began redirecting traffic from its China page, google.cn, to its uncensored Hong Kong page, google.com.hk.

Google said the move is "entirely legal," and said it will continue research and development activities in China. Some market observers had expected Google to announce its total withdrawal from the country today, as the company's disagreement with Beijing had reached a standstill. But Google's new approach is another surprise development.

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The Year of the Tiger is the Perfect Time for Caterpillar Inc.

In China, the tiger is commonly thought of as lazy, merely appearing to be strong and ferocious.

But that's truly not the case. The tiger does not waste his energy showing his strength. Instead, it sees the future and knows precisely when to pounce on its prey. Those who can see past the great wall of today and look into the future - much like our wise friend, the tiger - understand just what it takes to be successful.

If we were to analyze the growth potential for the worldwide construction industry, we would find that Japan's Komatsu Ltd. (OTC ADR: KMTUY) and the U.S.-based Caterpillar Inc. (NYSE: CAT) are best-positioned for global success.

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With Inflation Accelerating Around the World, Will the United States be Next?

Inflation is now thoroughly entrenched in India's economy, and some analysts fear that the United States could suffer the same fate if adjustments to monetary policy aren't made soon.

India's wholesale price index-based inflation rate in February accelerated to 9.89% from a year earlier. That was the fastest pace in 16 months, blowing past the Reserve Bank of India's (RBI) estimate for an 8.5% inflation rate at the end of March.

Soaring food prices were the primary driver of inflation. An index measuring wholesale prices of lentils, rice, vegetables and other food articles compiled by the commerce ministry rose 16.3% in the week ended March 6 from a year earlier after a 17.81% gain the previous week.

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Goldman Backs Money Morning Prediction That China's Yuan Will Dethrone the Dollar

Back in May, just after he'd completed his latest investing tour of China, Money Morning Chief Investment Strategist Keith Fitz-Gerald made a bold prediction: China's currency, the yuan, is destined to dethrone the U.S. dollar as the world's chief reserve currency.

Earlier this week, Fitz-Gerald's prediction acquired a powerful new disciple: Goldman Sachs Group Inc. (NYSE: GS) Chief Economist Jim O'Neill.

In an essay that's part of a report published Friday for Chatham House, a London-based foreign-affairs researcher, O'Neill wrote that China's yuan is destined to become a global reserve currency on par with the U.S. dollar or European euro.

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U.S. China Currency Dispute Heating Up

The heated debate between China and the United States over the value of its currency intensified yesterday (Thursday) when a senior Chinese trade official warned that further appreciation of the yuan could put many of its exporters out of business - something China can't afford.

Those remarks came shortly after a key International Monetary Fund (IMF) official flatly stated that the currency is severely undervalued.

China's Vice Commerce Minister Zhong Shan told The Wall Street Journal in an exclusive interview that the profit margins on many Chinese export goods were less than 2% and any further increase in the currency's value would endanger more exporters' survival.

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