Like Asia, European equities have gotten a lot cheaper compared to historical averages. Another simi...
Fear in the Alps, Confidence in Asia
04/23/2009 11:09 am EST
Hong Kong and Dubai are looking ahead as the Europeans fret, reports Resource Opportunities editor Lawrence Roulston.
Since the beginning of last month, four different trips took me to mining and investment conferences on three continents. This series of trips highlighted the differences in outlook in various parts of the world. The following is a collection of personal observations.
Toronto, at the beginning of March, hosted the annual conference of the Prospectors and Developers Association of Canada (PDAC), easily the largest gathering of mining industry people in the world. The city and the conference were both somewhat gloomy. Canada has not been hit nearly as hard as the US, but economic growth has dropped to near zero. Toronto, as the financial centre of the country, remains subdued, even though the Canadian banking system is in good shape, unlike south of the border.
The mining industry people, as you can imagine, were in a deep funk. Even so, there was a sense of fatalism in the air. The old hands had all been through at least a couple of downturns and survived to promote another day. Many companies have money, and some are still spending it to keep their projects advancing.
The mood in Switzerland in mid-March was particularly sombre. The value of the Swiss franc had just been cut in a surprise move by the government. It was bad enough that Swiss banks had gotten caught up in the mess that engulfed the American financial system. When the stability of the Swiss franc was rocked, investors were shell-shocked.
Speaking at investment events in Zurich and Geneva, it was clear that there was a bigger interest than usual in gold companies. Some of the big money managers were looking beyond the majors, to find bargains among the mid-tier and smaller companies. A few of the investment managers recognized the bargains in base metals and uranium, looking a couple of years out, and were beginning to sift through the juniors.
Consumer spending in continental Europe has so far been more resilient than the US and UK. France and Germany in particular were showing surprising strength, although mounting job losses are expected to have an impact.
The financial media follows the US situation closely, as if looking for evidence that the bottom has been reached in America before their economies can begin to rebound. The Madoff hedge fund scandal was still much in the news, further debasing the European view of American business practices.
The next trip was to Hong Kong. On the surface, Hong Kong is as vibrant as ever. Signs are subtle that the Asian financial capital has slowed down. The stores are full, but discounted prices are the inducement to get nervous shoppers to part with their money. The tourist spots were busy, in spite of cool, wet weather.
The Asian media are largely detached from the American situation. It's in the news, but the media are far more focused on what is happening in the region. The slide in the Chinese economy has been stabilized through government spending and various stimulus measures. The government acted quickly and decisively when the financial crisis hit. Spending was accelerated on infrastructure projects--roads, rails, ports and the like--that will provide long term benefits. Leading indicators are recovering, supporting the government target for growth this year of 8%, even though some commentators are still seeing the annual figure closer to the current level of around 6%. Exports are starting to rebound, in part due to the so-called "Wal-Mart effect": hard-pressed Western consumers are going down-scale, boosting demand for low-cost Chinese goods.
On to Dubai, for Mines and Money Gulf. Mines and Money is the premier London event for the mining industry and the investors who follow mining. The Dubai event is intended to establish a presence for the London group in the Middle East's financial center.
Media reports make Dubai sound like a ghost town. Undoubtedly, the city and indeed the whole region, have slowed. Yet, it is hard to imagine a more vibrant city. Construction cranes were active in all directions and the city is alive with commerce and entertainment.
Sheikh Zayed Road carries 14 lanes of traffic until the point where two lanes go off in each direction on a cross road just before the hotel from where I watched the endless flow. All 14 lanes are full of traf-fic from early morning until late night, slowing to a crawl during rush hours.
The vast majority of the cars are Euro-pean or Japanese, with a high proportion of big luxury cars. It's as if General Motors didn't know about this place. No wonder the company that once dominated the global auto industry is now begging for a government bailout in order to stave off bankruptcy.
The Mall of the Emirates, one of the two mega-malls in Dubai, is a truly enormous up-scale shopping extravaganza. Every brand name and designer label is avail-able. One section of the mall is intended to give the feel of an Arab bazaar, but is far too orderly to be authentic. Throngs of shoppers fill the stores, drawn in by the sale signs that are the only tangible evidence of the slowdown in the region.
Already one of the largest shopping malls in the world, with more than 520 stores, the mega-mall is currently undergoing a big expansion. Last year, the Mall of the Emirates recorded more than 30 million visitors.
With the negativity hanging over the Middle East andthe mining industry, the Mines and Money event was still well attended, albeit nothing close to the turnout in a more established mining area. There are a number of money managers with enough foresight to see that the global economy will eventually turn. They were very interested in learning about the investment opportunities in an industry where share prices are in bargain territory.
The final trip in the series was closer to home: Calgary, for the annual Cambridge House resource investment conference. Calgary is the center of the Canadian oil industry. As such, investors understand the resource industry, and the cycles of boom and bust. From the large turnout at the event, it is clear that many Calgarians recognize the wisdom of investing at the bottom of the cycle to be positioned for the upturn that inevitably comes.
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