Nate Weisshaar is an analyst for Motley Fool Global Gains who focuses on international markets. He's also a world traveler and sports a mullet. I asked him three questions.
Between the Greek debt crisis, BP's debacle in the Gulf, and the worry over the rest of the PIIGS, Europe's had an awful year. Is it time for bargain-hunting, or is the pain just starting?
Nate: Yes. It is time for bargain-hunting, and the pain is just starting, at least in my opinion. The problems facing Europe are very structural in nature. The PIIGS (Portugal, Ireland, Italy, Greece, and Spain) are facing some serious debt and growth issues that are magnified by the inability to devalue their currency, the euro, which is normally what countries in economic trouble do.
The austerity measures that will have to be implemented across the European Union in order to get government balance sheets in order will result in lower wages, smaller safety nets, and possibly higher taxes. None of those are good for consumption.
That said, in today's global economy, there are lots of "European" companies that don't actually rely that much on The Old World for their operations. Companies like the power and automation giant ABB (NYSE: ABB ) and Spain-based Banco Santander (NYSE: STD ) have built themselves up from European players to global operators, deriving more than 40% of their revenue from the emerging markets of Asia and Latin America. I think these types of companies are being overly abused by scared markets right now.
You're getting ready to make your annual summertime Global Gains research trip to China. What's your view on the Chinese market right now, and what are you all hoping to uncover during this year's trip?
Nate: I'm a little worried about China. The market has been sliding on fears that the real estate boom is coming to an end as Beijing winds down its stimulus. I think the market was overheated, so the comedown is a good thing for investors. But markets tend to overshoot, and China could have its own version of subprime lending on its hands.
Under edict from the central government, China's banks pumped $1.4 trillion in new loans into the economy last year. That is almost 50% more than in 2008. That type of lending usually comes from substandard underwriting. Now, Chinese banks are all backed by the government (they are state-owned, so this is explicit), so bad loans can be moved around the government's books and absorbed (read: disappear), but that is potentially still a lot of wasted money that will have to be replaced from future production.
However, I think there are steps being taken to support the Chinese consumer, which is vital for the economy to move forward. Workers are striking, and we are seeing rising wages; the government is working to put a nationwide health-care safety net in place; and we might even see the yuan appreciate sometime in the near future. Unlike the European situation, this is great for domestic Chinese consumption. Because of this, I am very interested in consumer-facing stocks when it comes to China, whether they be domestic small caps like snack-food manufacturer China Marine Foods Group (AMEX: CMFO ) , or premier Western brands with an eye for the Chinese market like Nike (NYSE: NKE ) .
Give me your prediction: Who wins the World Cup?
Nate: I've got to go with England. I just can't see Wayne Rooney letting this get away from them.
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