China Goes Unconventional
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- Created on Tuesday, 28 August 2012 17:36
- Published on Tuesday, 28 August 2012 17:36
- Written by Andrew Snyder, Editorial Director, Inside Investing Daily
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China may not be an economic utopia, but it can lead us to strong moneymaking opportunities.
I like to think of China the same way I think about politicians... or currencies... or even hot dogs.
They are dirty and disgusting... but we can't live without them.
In an ideal world, we could safely demarcate the good from the bad. We could shun anything that doesn't meet our criteria.
But this is far from an ideal world. If it were, I'd have more hair.
Since we can't stuff our money in an envelope and mail it to a land of economic utopia, we're forced to settle. That means investing is no different than picking a president or buying a pack of hot dogs.
Our job is to find the best of the worst.
Right now, I've got good reason to say one of the hottest investments in China deserves your attention. But it's not for the reasons you may think.
In my monthly newsletter Unconventional Wealth, I've written quite a bit about alternative assets like art, whiskey and even diamonds. Most of the opportunities I've outlined focus on what's happening here in the United States. But it is clear that China is quickly becoming the epicenter of the world's alternative-investing sector.
The country's explosive taste for imported wine is a good example of what I mean.
Thanks to growth of over 100% from China's burgeoning middle class last year, the country is now the top importer of wine from France's Bordeaux region. It bought more than 58 million bottles of the red wine in 2011.
But these buyers are not just interested in a few bottles to crack open at a party. In many instances, they are skipping the middleman... and are buying the entire winery.
Over the past four years, some 30 French chateaux were bought by Chinese investors, and another 20 deals are currently in the works.
It is good news for American grape growers. In fact, we're witnessing a wave of Chinese investments. Over the last 18 months, Sloan Estate, Silenus Vintner and Bialla Vineyards were sold to Chinese investors.
It makes sense. China's "conventional" markets are -- dare I say it -- even more manipulated than what we're forced to endure here at home. Their currency is rigged. The econo-data is bogus. Taxes are high and unpredictable. And years of stimulus have masked the true health of the economy. (OK... maybe they aren't all that different than what we're forced to endure.)
It is no wonder investors are doing whatever they can to ditch traditional assets.
In fact, the investment demand has been so strong in the wine market... the loan sharks in the banking biz are getting involved.
Hong Kong's Wing Lung Bank now offers a "wine financing service."
As long as the investor buys one of the wines on its list of 50 acceptable varieties, the bank will loan up to $640,000 at an interest rate of just over 6%.
I've heard that the demand for the loans has been overwhelming.
So what kind of return can you expect from wine? Good question. I've got an even better answer.
Over the past decade, the Liv-ex Fine Wine 100 Index has moved higher by a compound annual average of 14.1%.
The big test, however, will come in just over a month, on Oct. 5.
That's when Southeby's will kick off its annual Hong Kong autumn auction. We're told the sale will be heavy with names like Château Pétrus,Domaine de la Romanée-Conti and Henri Jayer.
After a hugely successful spring auction, which netted $27 million in sales, all eyes are on the fall sale.
According to the Jing Daily, we should expect a big turnout:
Considering many of the factors motivating these collectors in the first place -- asset diversification amid uncertainty about the yuan and Chinese stock and property markets among them -- remain salient, we should see some records broken.
Using that same logic, we understand why so many American investors are ditching their Wall Street investments. What ails us is not all that different than what ails China.
Bottom line... there are phenomenal moneymaking opportunities available to ordinary investors with the guts to stray from the herd. Wine -- and its 16% average return over the last decade -- is just one of them.
If you're not already exploring unconventional assets, don't let the Chinese beat you to the action. It may not be the ideal place to scout for hot new investments... but these days, it is better than the alternatives.
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