Why You Need to Buy the ‘Mirror Portfolio’

by Kris Sayce

There’s one big China story grabbing all the headlines.

It’s not the usual stuff.

Normally, it’s about China’s slowing economy.

Or it’s something about ‘ghost cities’ or ‘shadow banking’.

Sometimes it’s even about China’s territorial or military ambitions.

But this story is much bigger than that. This is a good news story. It’s another sign that the ‘Frontier Century’ is gathering pace…

You may not know about the ‘Frontier Century’.

But it’s quite simple.

For the past 124 years, one country has dominated the world economy — America.

It has been that way since America became the world’s biggest economy around 1890. It has grown and led the way on every aspect of the world economy.

It became the world’s biggest manufacturer. It became the world’s biggest services economy. It became the world’s biggest consumer economy.

When you think about it, it was an amazing time for America in 1890. Just 25 years before the nation was ripping itself apart in a civil war. But it didn’t take long for it to recover.

And when it did, it never looked back.

The ‘Frontier Century’

But that was the last century.

Today, things are changing. It may sound like a cliché, but there’s a new top dog on the world stage.

We are of course talking about China.

But to be truthful, China is just one part of the story. The ‘Frontier Century’ involves the growth of not just one economy, but many economies.

These are all the economies on the ‘frontier’. They are growing, expanding, and most of all, competing.

And they’re not just competing at home. They’re competing in the old markets of America and Europe.

That’s why the press is so excited about the US$162 billion initial public offering (IPO) of Chinese internet company Alibaba.

Until recently, when the press referred to a Chinese internet company, they would always compare it to a Western internet company.

A Chinese internet company was ‘China’s eBay’, ‘China’s Google’ or ‘China’s Amazon’. Heck, in a recent special report for emerging markets investment advisory New Frontier Investor, we even wrote about ‘China’s Ford’.

That’s fair enough when Western consumers have never heard of the Chinese companies. But how will Western consumers refer to these Chinese companies in the future?

Just as they would any other company. Because soon enough Chinese companies will be household names…

The new Carnegie and Morgan

Jack Ma is the founder Alibaba. He’s selling part of his shareholding into the IPO. According to the Financial Times, it could earn him up to US$841 million.

But more interesting than that is a letter Mr Ma wrote to investors:

‘In the past decade, we measured ourselves by how much we changed China. In the future, we will be judged by how much progress we bring to the world.’

We can imagine Andrew Carnegie or JP Morgan saying the same thing about America in the late 19th or early 20th century.

Chinese firms will no longer be ‘China’s Google’ or ‘China’s Ford’.

They will be global multinationals. They will most probably have Western sounding names. Most people won’t even know they are Chinese firms.

This is why we don’t pay too much notice to the mainstream’s shrill calls about a Chinese economic collapse or recession.

Will China have a recession? Of course it will. In the same way that the US economy has had a recession on average every six years since 1890.

Recessions are a fact of life in boom and bust economies. You can’t avoid them. But that doesn’t mean you should give up on a growth economy.

Imagine those investors who bought into the American economy in 1889. By July 1890, the economy went into a recession that lasted 10 months. It just so happened that that was when America became the world’s biggest economy.

What would have been the right thing to do? Get out of America, or stay the course as a huge change was occurring?

Failure to make the right decision meant the difference between making a fortune or not.

Once in 124 years

Is it certain that China’s economy will overtake America’s economy as the world’s biggest?

Nothing is ever certain. You may recall that during the 1980s many thought that Japan would overtake America. It was on course to do so, until Japan’s bubble economy collapsed in the late 1980s.

The country has battled against low growth rates ever since.

Because of Japan, many say that the same fate faces China. They say that, like Japan, China has grown too fast. They say it relies on infrastructure spending, stimulus and property prices to grow the economy.

If China can’t keep growing at its rapid rate, they say it will collapse and lead to a multi-decade recession.

That could happen. If it does, it would have a dire impact on the Aussie market, and world markets.

That’s why you shouldn’t have too much of your wealth in stocks.

However, what about the other side of the coin? What if China’s growth is sustainable over the long term? What if the ‘Frontier Century’ does deliver untold riches to those who invest at this early stage?

To us that’s the more likely outcome.

Is that something you want to miss?

We know we don’t. That’s why we hired an emerging markets expert. His job is to find the best way to help investors make the most of it.

So he came up with the ‘Mirror Portfolio’.

Simply put, it involves finding out the companies that did best when the American economy grew. You then invest in those same types of companies today.

For instance, the ‘Mirror Portfolio’ includes railroad, building, and ‘communications’ companies.

Look, China’s economy won’t climb in a straight line. It will hit rocky patches from time to time. But just as the American economy grew its way through those rocky patches, we’re convinced China’s economy will do the same.

In short, this is a once in 124 year chance to invest in a game-changing event. You shouldn’t miss it.

Cheers,
Kris

Read the rest of this article at Money Morning