A Bull in China
Summary
Rogers argues that China would become the dominant economy of the twenty-first century and that investors should build positions there, and he provides a practical guide to the share classes, exchanges and sectors available to foreign investors at the time.
The structural argument covers the savings rate, which he treats as the foundation of the investment capacity; the internal migration from countryside to cities; the education system's output of engineers; the accumulated foreign reserves; and the historical observation that China was the world's largest economy for most of recorded history and that the last two centuries were the anomaly.
The practical material covers the distinction between A shares, B shares, H shares and American depositary receipts and who could buy which; the Shanghai, Shenzhen and Hong Kong exchanges; and sector-by-sector arguments covering agriculture, water treatment, energy, infrastructure, tourism, education, healthcare and consumer goods. Rogers names specific companies in each.
The book was published in 2007, immediately before the Chinese equity market peaked and fell by roughly two thirds. The specific recommendations have not been tested favourably, and the Shanghai composite has spent much of the subsequent period below its 2007 level despite the economy growing several times over, which is itself the most instructive fact about the book. The structural growth argument was broadly correct and the investment conclusion did not follow from it. Read it as a demonstration that being right about an economy does not produce returns from its equity market.
Key takeaways 7
- China's high savings rate provided the domestic capital for an investment-led growth model without dependence on foreign borrowing.
- Internal migration from countryside to cities was the largest movement of people in history and supplied the labour for the industrial expansion.
- Foreign investors faced a segmented market of A, B and H shares with different access rules, which meant the same company traded at different prices.
- Water, agriculture and infrastructure were identified as sectors where demand would grow regardless of the growth rate, because of physical constraints.
- China was the world's largest economy for most of recorded history, which frames the last two centuries as an interruption rather than the norm.
- The Chinese equity market fell by roughly two thirds shortly after publication and spent years below that level while the economy grew several times over.
- Being correct about a country's economic growth does not produce returns from its equity market, and this book is the clearest available demonstration.
Who should read it
Investors interested in a period document showing how a correct macroeconomic forecast failed to produce equity returns.
About Jim Rogers
Co-founder, Quantum Fund 1973-1980; creator of the Rogers International Commodity Index
Long public commodities record plus Investment Biker and Hot Commodities, which outlasted their news cycles.
Where it sits in the reference 2
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