Financial analyst Jayant Bhandari shares his thoughts on Chinese growth and how investors have gotten ahead of themselves in wanting to catch the wave.
Speaking with the Investing News Network (INN) in Vancouver, financial analyst Jayant Bhandari shared his thoughts on what’s behind global growth and mistakes made by investors chasing wealth.
As it turns out, the two are connected, but not how you’d think.
Bhandari said that as a world leader in innovation and startup investment, China is ahead of the US.
“In terms of virtually every space to do with modern technology, and high science, China is exceeding the rest of the world already,” he said.
It’s a result of exponential growth over the past 20 years. “China is on the same path that Korea, Taiwan, Singapore, Hong Kong were in the past, which tells me that China will very likely, within my lifetime, become a first-world country.”
Growth in demand in China has been met with an enthusiastic response from investors in the mining space — something Bhandari says has led to the destruction of capital through over-investing.
“We as investors and as mining companies have increased the supply even faster than the exponential increase in demand that has happened. As a result, we have not only not helped metal prices from performing properly, we have also destroyed our own capital,” he explained.
“The biggest problem has been that we have invested in uneconomic projects or sub-economic projects,” he said. Watch the interview above, or scroll down to read the full transcript below.
INN: So, it’s day three of the symposium. How have you felt about it so far?
Jayant Bhandari: Well, I love coming to this seminar, and the reason is mostly because of Rick Rule. I learn a lot when I listen to Rick Rule. He is pretty much the person behind my education on junior mining companies. Ten years back, I was here, and there were not many speakers, and Rick Rule decided to speak for hours, non-stop, and that was really my true education in investing in junior mining companies. And, I’m a fan of this conference as a result of it.
INN: Last month, you gave a keynote speech at the Mining Journal Conference in London. Can you just run me through what you spoke about?
JB: I spoke primarily about the exponential growth in consumption of virtually everything on the planet happening, and what has been happening for the last two or three decades. Consumption of everything has increased exponentially, and a reason behind that exponential consumption growth has been China, and what I wanted to tell the people about is that China has actually contributed enormously to economic growth around the world and China will continue into the foreseeable future to contribute hugely to economic growth of the planet.
INN: When you say foreseeable future, how long are you thinking?
JB: I am looking into at least the medium term. China is a very stable country, probably the most stable third world country today, and in fact, it’s not even a third world country anymore, it’s a second world country. A lot of places in China look like first world places. So, China has grown a lot. There’s a lot of people who are still very poor, and China continues to make sure that those people participate in the economy and in the society. So, China’s Chinese way of growth, Chinese way to develop their society, is something I’m hugely respectful of, and I think China is on the same path that Korea, Taiwan, Singapore, Hong Kong were in the past, which tells me that China will very likely, within my lifetime, become a first world country. So, that’s the range that I’m looking at when I think about China.
INN: Okay. And so, what does that mean for people on the ground? You talked about startups in China. Can you just talk about entrepreneurial?
JB: Right. So, during my speech at Mining Journal, I showed people a graph in which I showed that China was second to the US in terms of number of startups, with values of more than US$1 billion. Now, that information is already outdated actually. I figured out later that China now contributes more to startups than America does. So, in terms of entrepreneurial activity, in terms of artificial intelligence, in terms of automatic cars, self-driving cars, in terms of virtually every space to do with modern technology, and high science, China is exceeding the rest of the world already, and that is actually what underpins the future of China because there are newest startups, there’s a massive amount of entrepreneurial activity happening in China. Chinese students, ones that have studied in the West, increasingly return back to China, not just to contribute into the growth of China, but also because they get better paid in China than they get paid in the US. The net result is that these people will contribute to the continual growth of China into the foreseeable future. And, one very interesting thing Scott is that the only backward third world country that I see where people have reading habits is China. There are massive, massive libraries and bookshops being built around China, and that tells me that the reading habit is picking up, and that again, underpins the future of China.
INN: So, obviously, the people of China are very optimistic about the future. Is that something that the rest of the world can get in on, would be optimistic about the future of China?
JB: I’m not so sure that every Chinese is optimistic about China because once you live in a society, you tend to look at the negative aspects of your own country, but also, Western people have been very negative in many ways about China. One is that they are negative about China because China is not a democratic country. They worry too much about it. China, according to the Western organizations, have been slowing down for the last 10 or 15 years now, which is actually true, in a sense, because the economic growth rate has been falling in China, but it does not matter because in absolute numbers, it is growing at a faster rate-because the low growth rate is on a higher absolute figure, which means that the cumulative effect of all this has been the Chinese GDP has been growing at an exponential rate, despite that the international organizations like to show that the growth rate in China is falling.
INN: And, what’s happening in the rest of East Asia? Is this a common trend across multiple countries?
JB: Well. I mean, this is exactly how Korea, Taiwan, Singapore, Hong Kong became first world countries. All these countries were poor, slum areas not too far in the past. 40 years back, Singapore was a poor country. Singapore today is probably among the top richest countries in the world. These countries have a huge growth potential. They have very stable societies. If you talk with a girl in East Asia, they really don’t worry about sexual harassment. These women walk around freely and live freely, and interact in the society freely because that is how safe these people feel in most of East Asia. Actually, all of East Asia. And, I think this is where the growth pattern of China comes from. China will continue to become safer and nicer, and more growth-oriented as time goes by.
INN: Coming back to natural resources, you spoke about growth in demand for natural resources in China, and also supply. Can you just touch on that?
JB: So, let’s look at Chinese steel industry. Chinese steel industry was non-existent about 20 years back. China is by far the biggest producer of steel today. Copper consumption was very little in China, 20 years back. China has added about 15 million tons of copper consumption in the last 15 years, 15 to 20 years, which means that world’s consumption of copper has increased about 150 percent in the last 20 years. Consumption of commodities across the board has increased exponentially in the last 20 years. The problem Scott is that we as investors and we as mining companies have increased the supply even faster than the exponential increase in demand that has happened. As a result, we have not only not helped metal prices from performing properly, we have also destroyed our own capital.
INN: So, metals are priced too cheaply at the moment?
JB: Well. Metals are okay, but the biggest problem has been that we have invested in uneconomic projects or sub-economic projects. Mining investors should never have done it. They invested in these companies in hope of metal crisis rising at a very pace. When you invest for commodity price speculation, you actually work contrary to your own interests, and that is what mining companies and mining investors have done over the last 20 years. Despite the fact that we were correct about exponential growth and consumption of commodities, we have destroyed the benefit that should have accrued to us.
INN: Okay. So, too much investment?
JB: Too much investments. Too much mining companies. We should have restrained ourselves from investing in these companies, which would have meant that supply would have at least gone up no faster than demand would have gone up, which would have helped our investments. And, in fact Scott, that is exactly what investors do in a bear market, and that is what they are doing right now. They are not investing too much money in mining companies, which means that in a couple of years a time, it will reflect well in our pocket, in terms of our net worth because that is when demand will start increasing faster than the supply can increase, and, hence, it will benefit our profitability.
INN: Can you see the bear market continuing for a while now or?
JB: Well. Bear market actually is a funny thing. I think the bear market is the best market to make money because that is where the best companies get very underpriced. I have done the best when it was the bear market, and in fact, not only you invest in the long-term that way, you also make money in the short-term, as long as you focus on value. Now, bear market can continue into the junior mining space because there are a lot of companies, and a lot of projects that have no value today and that will have no value tomorrow because they are promotional companies, and people have to be very careful about this aspect of the junior mining companies. They should only invest in companies with good managements and good projects, otherwise, for them, the bear market can actually continue into the foreseeable future.
INN: Okay. And, what can an investor do to weed out the promotional companies from ones that have real value?
JB: People really have to spend time analyzing these companies. They have to spend time going to projects and meeting these managements. If they don’t have the time to do all this, they should avoid investing in these companies because, otherwise, you are investing in something that you don’t really know. And, when you invest based on partial knowledge, your partial knowledge has less value than no knowledge. It’s only noise. So, you actually position yourself to make a loss when you invest without having thought through it properly.
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Securities Disclosure: I, Scott Tibballs hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in contributed article. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.