A very important context in the current investment environment. China is now implementing inflationary policies, with low bond returns due to the government’s continuous bond purchases, which can be very problematic for European investors.
In commodities sector the cyclical enviroment is important, but here too .
I´m studying diverse chinese companies and this point is very importtant
Great piece. Additionally, some sentences made me chuckle, like: "Germany—once the poster child for fiscal discipline—is suddenly borrowing money like a teenager with their first credit card."
I've recently given some thought to the topic. I wonder if for a specific kind of investor, that's not so much of an issue. Let's say that investor is a pure coffee-canner and income-oriented. He doesn't look at stock charts. Should inflation in the country he invests in worry him? Let's say the target country has a 10% inflation. Accordingly, the company he's invested in raises the dividend by 10%. At the same time, the currency depreciates by 10% relative to the investor's home country currency. As a net result, the investor gets the same dividend as before. And the income-oriented coffee-canner sleeps like a baby.
Well, in that situation the investor will have kept the dividend yield in his home currency. Fair enough. Obviously said, but the company will have to be able to pass all the inflation to the customers (which even companies with pricing power struggle to do), and hope their cost are not incurred in other currencies which have now appreciated (which is rarely the case in an interconnected world). I know it is a theoretical exercise, but rarely a country under these circumstances flourished, nor the population whose living standards get impacted and hence the companies serving those populations.
Great research piece, kudos, thank you!
A very important context in the current investment environment. China is now implementing inflationary policies, with low bond returns due to the government’s continuous bond purchases, which can be very problematic for European investors.
In commodities sector the cyclical enviroment is important, but here too .
I´m studying diverse chinese companies and this point is very importtant
Great piece. Additionally, some sentences made me chuckle, like: "Germany—once the poster child for fiscal discipline—is suddenly borrowing money like a teenager with their first credit card."
I've recently given some thought to the topic. I wonder if for a specific kind of investor, that's not so much of an issue. Let's say that investor is a pure coffee-canner and income-oriented. He doesn't look at stock charts. Should inflation in the country he invests in worry him? Let's say the target country has a 10% inflation. Accordingly, the company he's invested in raises the dividend by 10%. At the same time, the currency depreciates by 10% relative to the investor's home country currency. As a net result, the investor gets the same dividend as before. And the income-oriented coffee-canner sleeps like a baby.
What are your thoughts?
Well, in that situation the investor will have kept the dividend yield in his home currency. Fair enough. Obviously said, but the company will have to be able to pass all the inflation to the customers (which even companies with pricing power struggle to do), and hope their cost are not incurred in other currencies which have now appreciated (which is rarely the case in an interconnected world). I know it is a theoretical exercise, but rarely a country under these circumstances flourished, nor the population whose living standards get impacted and hence the companies serving those populations.
True enough... particularly FX costs increases. Ok, I see the theory runs quickly into practice.
Thanks for commenting.
Por cierto, si eres de España, acá tienes a un paisano
Lo soy! Encantado 😉