Dear Fellow Investor,
It's been an historic week around the globe.
As you know, here in the United States, Barack Obama won the 44th presidential election to become the first African-American president of our country. While much of the world's attention was on this historic election, another region was also making history this week on the other side of the globe.
The Association for Relations Across the Taiwan Straits (ARATS) -- China's top envoy on Taiwan affairs -- visited Taipei this week for discussions with the Straits Exchange Foundation (SEF) on how to strengthen ties between the Mainland and the island.
This marks the first time that these leaders met in Taiwan since these two bodies initiated talks 15 years ago. It's also the highest-level discussions between these two regions in nearly 60 years.
And so far, the president of ARATS Chen Yunlin has had a highly productive visit. On Tuesday, Chen and SEF chairman, Chiang Pin-kung, signed four agreements to increase direct air transportation and postal links, which would further boost bilateral exchanges and trade between Mainland China and Taiwan.
Here's what some of these deals entailed:
- 108 direct flights from the Mainland to the island will be available each week;
- Direct flights will run daily, instead of the previous four days out of seven;
- Tax-free cargo shipments will travel between 11 Taiwan ports and 63 Chinese ports;
- And 60 direct cargo flights will travel between the two nations each month, saving delivery time on mail.
Personally, I'm excited about the changes and renewed relationship between Mainland China and Taiwan for a number of reasons. One reason in particular: Direct flights will cut my travel time from seven hours to three hours on my trips between Shanghai and Taipei.
But aside from the ease of travel these strengthened ties are creating, these agreements also bode well for Taiwan's economy.
The Need for Strong Global Cooperation
If you recall, back in late March, I discussed how important the presidential election was for Taiwan. The country's two parties had differing views on Taiwan's relationship with the Mainland, and at that time, I noted that a pro-China president could help boost Taiwan's economy.
How is this possible? Well, Taiwan's new President Ma Yin-jeou understands China's rising position in the world, and that strong ties with the Mainland could ultimately stimulate Taiwan's economy, as well. That's why in his acceptance speech he stated that one of his main focuses would be to improve ties between the Mainland and the island.
And these recent negotiations couldn't have come at a better time. Like much of the world, Taiwan's economy has been hit hard by the global financial crisis. Ma hopes that strengthening ties with China now -- which has been more insulated from the financial crisis than other nations -- will help pull Taiwan's economy out of its current doldrums and boost the economy in the upcoming months and years.
I've been telling my China Strategy subscribers that strong cooperation between nations is extremely important for the world's economies to overcome the global slowdown and financial crisis. It's particularly important for countries with high debt loads -- like the U.S. and Europe -- to follow Taiwan's example and form ties with China.
The Chinese economy remains robust, and is set to post 9% growth next year -- a time when the U.S. will likely report -3% GDP. And many Chinese companies catering to domestic demand will continue to experience more than 20% earnings growth even as the U.S. economy contracts.
That's why the China will continue to outperform, and its markets will lead the global markets higher in the months to come -- despite the global economic slowdown. This is becoming even more clear now…
Finding a Bottom
As you know, this past October was one of the worst months in market history. Throughout the month, we saw global markets searching for a bottom -- the constant plunges and mediocre up days had even me questioning if we'd find a bottom and see some fourth-quarter bounces.
But I think we've finally seen a bottom in the Hong Kong markets. Since the fourth-quarter rally -- that I've been expecting -- ensued on October 28, the Hang Seng index has surged 25%!
And I'm expecting this rally to continue through the end of the year. That's why you need to act now in order to truly take advantage of this move higher in Chinese companies. To find out my latest advice on what Chinese stocks you should be buying now, join China Strategy today!
Robert Hsu
