New global economic leadership

The USA was not always the global economic leader. It took its current place more or less after the world wars. Before the USA, the UK was the leader. The Sterling Pound was worth a lot more than what it's worth today. I remember my parents and my grandparents keeping the Sterling Pound. The exchange rate was S$7 to a Sterling Pound, if I remember their accounts correctly. So, global economic leadership shifted from the UK to the USA.

Now, Jim Rogers has said this many times and I agree with him: economic leadership is shifting once more and the next 100 years will see Asia taking over the reigns of global economic leadership and he expects China to take the lead.

That's why I've also shared my views with friends that my favourite currencies, apart from gold, are the RMB and the Indonesian Rupiah. I've a bit of all three and intend to accumulate more gold. The RMB and the Rupiah are fiat currencies like the US$ but they have not been abused and are not as flawed.

The Chinese economy is large and dynamic. However, it has to undergo a huge behavioral and structural transformation for the Chinese to consume more and to rely less on exports. Why do I say this? Let's look at Indonesia. It has a population of 240 million, a far cry from China's 1.6 billion, and private consumption is 60% of its GDP. In China, private consumption is only 36% of its GDP.

Many might or might not know this but "China's consumption-to-GDP ratio has dropped by nearly 15 percentage points since 1990 and continues to deteriorate in the aftermath of the financial crisis. The sources of China's low consumption rate are both behavioral and structural." This was in a recent report by McKinsey.

Asia might be the future economic powerhouse of the world and China might become the leader but the journey has only begun.

Thoughts on methodology

1. Buying when a stock has broken out of its base formation or long term downtrend in the early stage might be good. This is what pure TA guys would do: wait for confirmation before buying in. I don't do this because I look at FA first and, then, TA. If FA is good, I look for a nice price to enter using TA.

2. Buying a stock when it has broken out of its base formation or long term downtrend and has gone way up is a bad idea as that carries greater risk.

3. Personally, I like to be where the action will be rather than where the action is. I'm not very good with the latter and usually end up losing money. So, looking for early signs of a possible breakout scenario is what I've been doing for months now. I continue to do this and I like stocks of fundamentally good companies which are still in their base formations, either primary or secondary.

4. The stocks which are testing the top of base formations and long term resistance trendlines should ideally have limited downside: TA should show rising MAs closely supporting the prices even as the formation or resistance trendline is being tested. FA should show a robust set of numbers which tells the investor to stay vested with confidence. This is why I'm vested in counters like Saizen REIT, for example. This is why I am not vested in Genting, for example.

Everyone should develop a method that works for him and one that he is comfortable with.