Buying at the Point of Maximum Pessimism: Six Value Investing Trends from China to Oil to Agriculture by Scott Phillips & Lauren Templeton

Author:Scott Phillips & Lauren Templeton [Phillips, Scott]
Language: eng
Format: mobi
Publisher: Pearson Education
Published: 2010-05-04T16:00:00+00:00

To grasp why the financial crisis marks an inflection point in China’s modern history, we need a brief and modest historical context. Broadly speaking, during the past 4,000 years, China has developed a relatively continuous national identity. Perhaps due to the Confucian principle of studying history, many Chinese can appreciate their country in a larger historical context. Many understand that approximately 300 years ago China, alongside its Asian neighbor India, controlled 60% of the world’s GDP. In the 300 years that followed, paced by the Industrial Revolution, the world seemingly reversed hemispheres as it came to be dominated by the Western nations of Europe and the United States. These countries leveraged their industrial capabilities into military and commercial power. Meanwhile, during the twentieth century, as Western society achieved its heights, China suffered one setback after another. Invasions, occupations, civil war, political upheavals, natural disasters, famine, persecution, civil strife, and widespread poverty were all part of the Chinese experience of the twentieth century. In the time continuum of Chinese history, the majority of the twentieth century represented a low point. Even so, the fabric, national identity, and pride of the Chinese never wavered. Late in the twentieth century, Deng Xiaoping eventually assumed leadership of the country after the passing of Mao and the political defeat of his cronies in the late 1970s. He undertook the difficult chore of rebuilding China from decades of institutional mismanagement. In his search for answers, he examined several other Asian nations that had successfully constructed powerful economies, widespread prosperity, and peaceful, law-abiding environments that were still thoroughly controlled by their respective governments. Deng found in his travels and research that he wanted China to model itself after Singapore, South Korea, and Japan. In particular, he pointed out Singapore as the model China would both emulate and, in his mind, improve upon. The surprise of this one-time communist revolutionary singling out Singapore—Asia’s most sparkling example of the success of free-market enterprise and capitalism—as the model for China’s future cannot be overstated. Upon closer inspection, however, the Singaporean model was a natural fit for Deng and China. For starters, at one time Singapore was itself a microcosm of China when Deng came into power. In the 1960s, Singapore was a city-state that, after breaking off from Malaysia in 1965, basically had to find its place in the world. It did so by embracing the Western ideals of free markets, property rights, and capitalism in an attempt to join the global economy. Incidentally, this plan not only worked, but worked on an unprecedented scale. Importantly, based on the public accounts of Singapore’s original Prime Minister, Lee Kuan Yew,1 Deng was impressed with the use of the capitalist model to create widespread home ownership, especially in the context of an authoritative government and large presence of ethnic Chinese (77% of the population). China was in a similar situation in the late 1970s when Deng came into power. It had been cut off from the rest of the modern world for half a century under Mao and was starting from scratch in a world that had left it behind.

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