CashBench looks at some recent developments in Asia and around the world, and highlight trends that are important to investors. For November, this includes the new “Nasdaq” board in China, the Brazilian currency, and gold prices.
1. Irrational investors on China’s new “Nasdaq” board
China opened a new “Nasdaq” style stock exchange in Shenzhen on Oct 30 that allows smaller companies to be listed. This ChiNext exchange has been planned for a while, but the speculative investors rushing into this new stock exchange are already creating a stock bubble. Since it opened a week ago, the initial list of 28 stocks has gained as much as 210% and “circuit-breakers” meant to reduce speculation has been activated repeatedly. Some companies now have a PE (price to earnings) ratio of more than 100. As a comparison, even the bubbly Shanghai stock market averages a PE ratio of only 30. CashBench sees this as a good reminder of the higher risks in investing in the more volatile Chinese stock markets. More importantly, investors who directly or indirectly invest in China should take note that bubbles will eventually burst, sooner or later.
2. Brazilian currency gained 30 percent over one year
The US dollar is expected to continue its depreciation over the short to medium term because of the massive amount of money spent to stimulate its economy. Despite that, unemployment has reached 10.2% in the latest quarter. This is higher than expected and simply means lots of people are still out of work. Recover will continue and growth will occur, but a depreciating US dollar means some currencies must appreciate. Investors will have noted that Asian currencies are rising against the US dollar lately, but the Brazilian currency (Brazilian real) has gained even more. Over the past year, that gain was 30%. What’s even more significant to investors is this: the Brazilian government has just put in place measures to slow foreign investments, but an International Monetary Fund (IMF) official has said it’s unlikely to work. Time to buy some Brazilian real?
3. Gold hitting new highs above US$1,100 per ounce
Gold has been on an upward trend and has recently hit US$1,100 an ounce. The weakness in the US dollar and the underlying risk of inflation in the US and other developed countries is fuelling its rise. It wasn’t too long ago that Gold was at US$1,000 (September 2009), which means it has risen by 10% in just 2 months. Not exactly a good time to rush into gold investments for really short-term buyers, but there may be room for further growth as the US dollar is likely to weaken further, and there’s a reasonable chance of higher inflation occurring when global recovery is in full swing. Those who have some time to monitor gold prices may find it a worthwhile investment.
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