When There Is Blood on The Street… Buy In

Wednesday, October 1, 2008 1:21
Posted in category The Big Picture

Last week while watching the movie “Inside Man“, Jody Foster has a line that says “When There Is Blood on The Street, Buy Real Estate”… and I really cannot think of a more fitting line than now.

Although, I think there are a lot of opportunities outside of real estate now.

Following up on yesterday’s post, I spent a little more time thinking about the fallout that we are all witnessing.  The US Congress has agree to meet on THURSDAY, 4 days after the bailout plan failed to pass in the house, and markets around the world have been reeling.

But, business is business, and just like everything else there is money to be made in times of turmoil..

The question is who will make it – and how.

Analysts say Big 3 need loans quickly offered the spark for this post as it appears that big 3 automakers are once again on the ropes and in desperate need of assistance. A topic I covered a while back, Chinese firms have been looking to crack the US market for sometime.  they have shown their own cars at the Detroit auto show, they have attracted the investment of many, and with US firms outsourcing large chunks of their lines to China, the decision is only getting easier and easier for a Chinese firm (back by the Chinese government) to make a move that will improve their global stature.

Airline firms are also likely to see some level of interest.  Marred by a long history of inefficiencies, gas spikes, and large pensions, the US airline system is ripe for investment ….and overhaul.

Real Estate -Perhaps the first asset class that will see significant action, the Chinese love real estate investment ,and we are about to see perhaps the largest glut of non-performing assets go on the market – primarily real estate based.  So, with a strong RMB and in an auction environment, Chinese firms, funds, and citizens are surely going to become a lot more active in this market.  It will potentially be the first asset class to see.

Construction equipment and building materials – If there is an industry China feels comfortable with in their own market, it is this market.  Its firms are growing in strength, have already done well in the southern hemisphere, and we were already seeing Chinese investment activity in other markets as they sought to take on the Northern Hemisphere markets.

Technology firms – WOW has Apple been punished lately.  Even though they warned with their estimates that sales would be impacted by the wider economy, they have still been pummeled… and they are not the only ones.  With this trend likely to continue, I would look for Chinese positions to be placed on the equipment side first, but it is possible that gaming firms, enterprise software firms, etc could also see investments.

Entertainment companies – Still largely kept to the fray of the implosion, entertainment firms could also draw some interest.  China’s market for almost everything is the largest in the world, and movies, television, and music are no exception.  as the recession takes hold of consumer confidence, and as people stop spending on entertainment, the valuations of these firms are likely to become more attractive.  Realistically – there are huge hurdles here outside of the investment angle – like who would manage the firms – but from a financial investment perspective it could be interesting

With the US economy seemingly on the edge of a nasty cliff, it is my expectation that China will begin to use some of its reserves to diversify its own positions.  There is little question that the US market will rebound with some time, and that is good for investors who are able to find the bottom and make their plays.

I do not believe that we will see investments along the lines of the Japanese where prices were clearly overpriced.  What we will see, if we see anything at all, is clearly modeled assets that are near the bottom.  Negotiations will not rape the Chinese firms as they did with the Japanese, and my guess is that this time it will be US sellers who are wondering what happened.

Be interested to hear thoughts on other industries that you feel would be prime for investment…. or on the theory that the Chinese investments will be more about value than buying gems.

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4 Responses to “When There Is Blood on The Street… Buy In”

  1. Dan says:

    October 1st, 2008 at 8:13 am

    One of the things I love about the Chinese blogosphere is that we all write from our own perspectives, with our own particular set of blinders on. Starting a few months ago, my law firm has gone from getting around 1 call every few months from Chinese companies and individuals seeking legal assistance in the US, to around one call a day and 8 out of 10 of those calls are from people seeking to buy real estate. The other 2 are from companies seeking to buy manufacturing companies. That’s what I am seeing.

    Having participated in a slew of Japanese transactions back when everyone feared Japan was “taking over,” I agree with you that the Chinese approach has been and will be very different when it comes to price. Very different.

  2. Rich says:

    October 1st, 2008 at 8:31 am

    Dan

    is the real estate they are buying up residential or commercial? I don’t see much activity on the industrial side, although I bet Tacoma port is ripe for some money from Shanghai Port, but my experience is that Chinese will invest in rentable properties first (resi and commercial). They are not going for Rockefeller for a name, they want a positive rental yield that covers their mortgage payments.

    R

  3. Rich says:

    October 1st, 2008 at 9:49 am

    Ford’s September auto sales drop 34 percent is the title of the story… and here is the lead paragraph

    Tight credit, economic worries and high gasoline prices combined to cut Ford Motor Co.’s U.S. sales once again in September, with the beleaguered automaker reporting a 34 percent decline from the same month last year.

    Is the25 billion USD package the US congress just approved going to be enough save them?

    Further..

    Ford has lost $23.9 billion in the past 2½ years and has had to mortgage its assets to stay in business. General Motors Corp. has performed strongly overseas but plummeting demand for its most profitable products in the U.S. has led to losses of $57.5 billion in the past 18 months, including $15.5 billion in the second quarter.

    Does this make them more or less attractive as a buyout target?

    Would a Chinese buyer see political resistance now or would they be accepted as an “only option”?

  4. Posts of the Week: 9/29 - 10/05 | China Stocks Blog says:

    October 6th, 2008 at 8:48 am

    […] When There Is Blood on The Street… Buy In at All Roads Lead to China […]