How You Can Profit from China's Big Company-Buying Spree

Do you remember the gasps when the Japanese were snapping up some of America’s most-loved landmark properties during the 1980s?

Back then, the business news often included a segment about the Japanese snapping up American icons, like Pebble Beach, Columbia Pictures or Rockefeller Center.

If the news wasn’t about the Japanese buying something, it was about them building factories in places like Smyrna, Tenn. (Nissan produced its first vehicle there in 1983 and continues to expand, most recently through the opening of a billion-dollar battery plant.)

Heck, whole movies were made about this phenomenon. Remember Michael Keaton in the 1986 movie “Gung Ho”?

When this was happening, I worked at Merrill Lynch. There, I used to tease my co-workers that they had better be nice to me because one of my Japanese uncles might soon buy Merrill Lynch, too.

The Japanese buying spree was a function of the country’s great prosperity. Throughout the 1970s, Japan consistently had the second-largest GDP and one of the highest per-capita incomes in the world.

Today, however, while Japan has pledged to try to print its way back to prosperity, other Asian countries – that are growing more-prosperous every day -- are getting in on the action.

This is opening up some pretty compelling investment opportunities … right here and now … in the companies and funds getting a boost from these cash infusions that originate from overseas.

South Korea took up the torch when its Doosan Infracore bought Ingersoll-Rand’s (IR) Bobcat division for $4.9 billion.

If you’ve ever hung around a construction site, you’ve seen Bobcat’s loaders in action. These machines are one of the most-versatile pieces of construction and maintenance equipment ever created. Their lift arms can be attached to a wide variety of labor-saving attachments such as backhoes, trenchers and pallet forks.

Bobcat also manufactures mini-excavators, telescopic tool handlers, and portable air compressors. If there’s an outdoor job to do, there is a Bobcat that can help you do it faster, easier and better.

In short, Bobcat is an American construction icon.

Many of the red-blooded Montanan construction workers that I talked to back when it happened a few years back weren’t too happy to learn that Bobcat would be owned by foreigners.

However, Americans better get used to it, because the Asians have a bunch of money and are going to keep buying businesses.

And you know what? Japan and South Korea are just a drop in the bucket compared to the American buying spree that China has been on.

The Chinese Are Picking Up
Where the Japanese Left Off

Do you remember the 2005 hostile takeover attempt by China’s government-owned China National Offshore Oil Company (CNOOC) of California-based Unocal? CNOOC eventually abandoned its $18.5 billion bid for Unocal (which was later acquired by Chevron), but that was just the tip of the iceberg.

For example, Lenovo bought IBM’s personal-computer division for $1.75 billion and the Chinese government invested $3 billion investment in the Blackstone Group.

The Chinese aren’t just buying businesses — they’re buying skyscrapers, shopping malls, farms, forests, ski resorts, vineyards, refineries and mineral deposits.

And they are just getting warmed up!

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In the last few months, the Obama administration has approved a couple of purchases of American businesses by Chinese companies.

  • Complete Genomics, one of the global leaders in DNA-sequencing technology, will be owned by BGI-Shenzhen. China is investing so heavily in biotechnology, pharmaceutical and genomics research that China, not the U.S., is where the cures for our worst diseases — cancer, diabetes, Alzheimer’s and AIDS —could come from.
  • Wanxiang Group, China’s largest auto-parts maker, received permission to buy bankrupt electric-car battery maker A123 Systems. By the way, A123 was one of those pet green energy projects that were funded with $241 million in government grants. Now China gets all those assets and that cutting-edge battery technology for pennies on the dollar.

To be fair, the Chinese aren’t picking on just the United States.

Citic Group, China’s largest state-owned investment company, recently announced that it is paying $468 million for a stake in Australia’s Alumina Ltd., one of the world’s largest alumina businesses.

And China National Offshore Oil Corp. (yup, the same company that tried to buy Unocal) received approval to buy Canada’s Nexen, an energy company with gigantic reserves of oil and natural gas.

However, the Current Chinese Buying Binge
Is Very Different from the Japanese Spree

I see at least three important differences this time around:

First, the Japanese companies doing all the buying were privately owned; many of the Chinese buying are state-owned and -run.

Second, Japan is a democracy; China is not.

Third, and most importantly, Japan was not buying strategic resources like oil and natural gas; China is.

Is this Chinese buying binge something that we are Americans should be worried about? That’s depends largely where you fall on the free trade vs. national security debate, but it absolutely has huge implications for investors that are smart enough to put that knowledge into action.

How can you make money?

Well, you could dig out your Ouija board and try to come up with a takeover list, but I think that’s an impossible game to play.

On the other hand, I am confident that the Chinese will continue buying access to the raw materials they need to fuel and support their rapidly expanding economy. I’m talking about:

Energy, such as oil, natural gas and coal

Metals, like aluminum, copper and steel

Foods, including pork, poultry and agricultural products

Construction materials, such as cement, timber and heavy machinery

So, it won’t take much homework to come up with a list of companies that are probably sitting on resources that the Chinese want. What you need to do is get "long" whatever the Chinese are buying.

If you’re more of a mutual fund or ETF investor, you could look at the iShares S&P North American Natural Resources Index Fund (IGE), the Energy Select Sector SPDR Fund (XLE) or the U.S. Global Investors Global Resources Fund (PSPFX).

Whatever you do, make sure you pay attention to what the Chinese want because if you get in front of their long-term, multi-decade natural resource buying binge, you could make a mountain of money.

Best wishes,

Tony

P.S. Overseas companies coming to the U.S. to run or even build companies here is just one trend starting to take off. My colleague Rudy Martin has identified four HUGE global mega-trends that are powering the markets right now!

Get all the details on these international money-making opportunities — click here to access his new global profit report -- and find out how to get in on his new recommendations that are coming online tomorrow!


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Posted 02-22-2013 11:34 AM by Tony Sagami

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How You Can Profit from China's Big Company-Buying Spree - Uncommon Wisdom - Investment Strategies, Analysis & Intelligence for Seasoned Investors.