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Jim Moffett on Bloomberg's "Marketline"
February 17, 2006
| Time: | 01:30 PM ? 2:00 PM |
| Station: | Bloomberg |
| Location: | Network |
| Program: | Marketline |
ELLEN BRAITMAN, anchor:
We want to continue right now with our weekly installment
on global investing. And today we want to focus on how to
take advantage of China's growth without investing directly
in the country.
Our guest is Jim Moffett. He's a fund manager from UMB Asset
Management. He's going to tell us why he thinks investing
indirectly in China is a better bet for investors. And Jim
is joining us today from Kansas City.
And Jim, nice to have you with us today.
Mr. JIM MOFFETT (UMB Asset Management): Hi. Glad to be
here, Ellen.
BRAITMAN: Why avoid China directly?
Mr. MOFFETT: China's a great place; I mean, it's booming.
But you look at the markets, the stock market, the
Shanghai Index as an example, and it really hasn't gone
anywhere, I'm told, in the last couple of months. There
seems to be a disconnect between investor returns and
economic growth, which is not that unusual around the world
really.
BRAITMAN: So it's the disconnect, in terms of the returns
versus the potential, as opposed to, say, not having
adequate information on companies that you might be
interested in investing indirectly.
Mr. MOFFETT: Well, there are issues of shareholders
rights. I mean, most Chinese stocks, all you are is a
minority shareholder. The transparency in their
governments isn't very good. The accounting isn't
very transparent. We're just--and the markets seem to
respond to that. Meanwhile there are better alternatives
abroad created by China's growth, as in raw materials and
machinery companies that export to China.
BRAITMAN: Give us some of those ideas. I know, for
example, Japan is one way that you look to get some
exposure to China. How does that work?
Mr. MOFFETT: Well, it works two ways. One is specific
companies, like Komatsu1, that benefit by selling machinery
to China. And the other is Japan in general. The boom in
China has led to an export boom from China--from Japan to
China, such that China actually imports more from Japan now
than the United States does. And one of the primary areas
is machinery. And Komatsu is doing very well at that.
They're also selling machinery to the mining business that
in turn benefits from China's demand for minerals.
Komatsu, we may know, is Caterpillar's main worldwide
competitor. I mean, they're not a fly-by-night company.
BRAITMAN: And their shares have already been surging. We
just showed our viewers a chart. More than 100 percent
over the past year. So, where do you think the shares
could go from here? How long do you hold them?
Mr. MOFFETT: We think they're a good long term holding. I
mean, the development of mines and infrastructure is not
something that happens overnight. Stock is available at 18
times earnings, roughly. So we think it's a good value
with continued growth behind it.
BRAITMAN: We just brought up BHP Billiton because we
wanted to show our viewers those shares have also been on
the rise. Up 29 percent over the past 12 months. And it's
another stock you think is a good indirect China play.
Tell us how and why.
Mr. MOFFETT: Well, China imports a lot of raw materials.
And Billiton is--BHP Billiton1 is the world's largest mining
company. And they dig and export iron ore, coal, copper
and oil. They're all items that China's the driving factor
behind worldwide demand.
.
BRAITMAN: In terms of BHP Billiton, we've had a lot of
consolidation. Do you think that they will be looking to
do deals? And does that make it attractive or not?
Mr. MOFFETT: We think they're fairly disciplined. They've
gone through the process in earlier decades. It's a long
term trend, and we don't see them making any acquisitions
at this point.
BRAITMAN: And we are going to leave it there, Jim Moffett.
Thanks so much for your time this afternoon.
Mr. MOFFETT: Pleasure. Good to talk to you, Ellen.
BRAITMAN: Jim Moffett is fund manager with UMB Asset
Management.
1As of December 31, 2005, Komatsu Ltd. and BHP Billiton represented 2.4% and 1.2% respectively, of the UMB Scout Worldwide Fund?s total net assets. Portfolio holdings will change due to ongoing management of the Funds. References to specific securities should not be construed as recommendations by the Funds, its Adviser or Distributor.?
Foreign investments present additional risks due to currency fluctuations, economic and political factors, lower liquidity, government regulations, differences in securities regulations and accounting standards, possible changes in taxation, limited public information and other factors. The risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less established markets and economies.
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