“Rich Man’s Market… Stampede Out of China is Worth 2,507%”

Teaser picks from the Merchant Banker Alert

By Travis Johnson, Stock Gumshoe, September 28, 2010

Yesterday I looked at Martin Hutchinson’s teaser for his Merchant Banker Alert, and promised that I’d try to get to the other ideas … so since I’m a bit too sick today to start a brand new adventure with you, let’s keep gnawing at this bone for a while …

That article, by the way, is right here if you want to catch up with the rest of the class.

And the one that caught my eye is the “Stampede out of China” idea, all about the next hot market …

“The Stampede Out of China Is Worth 2,507%

“Most regular investors still think China is ‘big news.’ But the rich 1% know China is yesterday’s news.

“In fact, there is a veritable stampede of major companies leaving China.

“Google is leaving…

“General Electric is leaving…

“L’Oréal and New Balance are leaving…

“North Face, Lee, and Wrangler are picking up…

“Ford’s going and so is Mazda…

“Toyota and Honda closed down…

“Where are they going? Where the labor is cheaper and younger and still has 20 to 30 years of working life ahead.”

OK, so that’s at least a bit of an exaggeration — I haven’t checked the China plans of each of those companies, but Google, if they leave, will essentially be doing so because they’re forced out, and there’s no way that Toyota, Honda and Ford are going to “close down” in China, the world’s largest car market. That’s not to say that they might not be moving production elsewhere, but they’ll be making money in China.

The key then, seems to be that Hutchinson says the big companies are moving production to a cheaper and younger country. Which one?

We get a few clues — first, that foreign direct investment hit $9.58 billion in 2008 … which itself is enough to identify the country if you know where to look, and then he provides a few examples …

“Intel is starting production at its $1 billion-plant there as I write…

“A venerable Japanese cosmetics maker just completed a $42 million manufacturing plant there…

“And one of Mitsubishi’s major divisions is setting up shop there.

“Even Chinese companies are relocating to this investor’s paradise. They have 743 projects, amounting to $3.1 billion, spread across the country.

“As of July 2010, foreign investors have invested $93 billion into over 7,000 projects there. That’s an increase over 900% in just the last two years.”

OK … so I can tell you that the country is Vietnam, often cited as the next source of cheap labor with China growing somewhat more expensive for manufacturers — like a lot of countries, they started off at the very low end of the manufacturing totem pole, with textiles and sneakers and stuff like that, and they’re trying to move up into more value-added stuff (and higher paying jobs).

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I dabbled in one of the closed end funds that invests in China a couple years ago, then got out when that market weakened considerably, and it’s lagged behind many of its southeast asian neighbors in recent years. There’s now an ETF for Vietnam, too, and a stock market that’s gradually opening up a bit, but in many ways the marketplace is similar to China many years ago, dominated by very inefficient state-controlled companies.

Can we find out which firm Hutchinson is talking about? He provides a little bit more of a clue:

“Up until now, you had to be a private equity or hedge fund investor to get in on the “ground floor” of this global opportunity. All but the heaviest hitters were shut out.

“But now, I’ve found a way in for you.

“As a Merchant Banker, I’m pointing you to the “sweet spot” on the leading edge of global economic development.

“And note: This company has tapped some stellar American management talent with 50-plus years of experience in international business.”

OK, so that’s not so much a ̶