Customers walk out of a shopping mall in Shanghai
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Investor Jim Rogers frequently says on television that we are in a long-term bull market in commodities and that this is the asset class that is really going to perform. Do you agree?
I'm agnostic about it. I can see the validity of the argument, that it is different this time in commodities, but I don't have a strong conviction about it.
So gold is not an important part of your portfolio?
I've never understood gold and why you would want to own an asset that has no income return and actually costs you money to own and store. I sort of agree with what [Warren] Buffett said, about how he never understood why they send a bunch of men 5,000 feet under the ground in Africa to bring out this metal, and then they ship it all across the world and it's buried 1,000 feet underground at the Bank of England and the U.S. Treasury. There is something illogical about it.
China is the mother of all emerging markets. Do you see its stock market on a boom-bust trajectory, or is this the dawn of a major bull market, akin to 1982 in the U.S.?
I would characterize it as being more similar to the U.S. in 1982. And China is still cheap. It isn't as cheap as it was four months ago, but that was the bottom of a long-term bear market, so I still think it looks really good.
So you're not worried about a China bubble?
The definite risk was that they were expanding and stimulating so rapidly, it was getting out of control, and that speculation, particularly in real estate, was going to be a real problem. But the latest data suggests just the opposite. While the bears are talking bubble, the new numbers show that industrial production slowed in the most recent month, and also that the volume of new loans made in July was down pretty dramatically. That's good news.
Which of the world's stock markets will benefit most from China's rapid growth? Big players like Japan and Taiwan, or the smaller basket of Southeast Asian stock markets?
I think it's the smaller basket of Asian markets, and that includes Indonesia, which is lately the hottest of the Asian emerging markets because they've come through this [economic crisis] very well and they seem to have their act together in terms of fiscal and monetary policies. Indonesia's political process has improved tremendously; it also has a big population and a lot of natural resources. The stock market is already up quite a bit.
I think a country like Thailand is also likely to be a beneficiary, and eventually even the Philippines and Vietnam.
Why not Taiwan?
Certainly Japan and Taiwan are going to be beneficiaries because, in the case of Japan, they are a huge exporter of high-performance capital goods, very complex machinery and equipment like that, that most other countries can't produce themselves. Taiwan is a more component supplier of electronics. But the Taiwan bulls would argue that Taiwan is going to become the newest province of China; there is going to be a huge flow of real estate investment and industrial investment by mainland Chinese into Taiwan. I have trouble believing that.
Why?
In Taiwan, the indigenous population is actually declining, and the manufacturing base is really located in China rather than Taiwan. I don't see what the attraction is going to be for Chinese industrial investments or for Chinese real estate investments in Taiwan. I just don't find Taiwan has that attraction for the Chinese that Hong Kong does.
Moving to Japan's stock market, which has been comatose for years, are conditions taking shape for its bull to reawaken?
I think they are. Consumer confidence in July rose, exceeding expectations, and there's been a sharp acceleration in industrial production. Also, there is an election in another week, and it's pretty clear that the LDP [Japan's ruling party] is going to lose. The new party that's coming in intends to put through programs that will increase the amount of money that the average Japanese [person has], thereby stimulating personal spending. For example, it intends to cut the gasoline tax and eliminate tolls on all roads. They are going to pump money into the Japanese consumer, whereas the LDP's policy of stimulation, as a cynic would say, was to build bridges to nowhere. They'd create these big industrial-development projects, which really haven't worked and haven't turned the economy around.
As for the China play, Japanese exports of complex, technological equipment have soared. Of those exports, half of them go to Asia, and of that half, 40% goes to China. So it's certainly benefiting.