Update of 2011 Investment Strategy

As inflation expectation is accelerating, many value ideas have increasingly become value-trap without immediate value-unlocking catalysts and many growth ideas also face multiple contraction problems with no more marginal buyers and marginal sellers showing up almost everyday.

And no surprise, bearish vocie on China start to be heard again.

I have my own doubts on sustainability of current growth pace in China. However, size does matter – the last decade’s huge jump in China’s economy size means China is not a marginal player in global economy any more even if its growth slows down.

The investment implication, therefore, is focused on China’s size, not on its absolute growth. One of the most intriguing investment ideas could arise from sectors or companies that benefit from level of economy size, rather than economy growth itself. For example, China’s auto consumption hit 18mm units a year, already exceeding USA. Whether or not it will keep growing, that’s an open question but some sectors can definitely benefit from expanded number of cars running on the roal, including auto insurance, 4S stores that make more money from maintenance rather than selling new cars, etc.

As China changes, we investors should change, too. So forget about “dark horse” – think about blue-chip large cap names that can see sustainable growth thanks to China’s expanded economy size.

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