This isn’t a great time for foreigners to invest in US equities. With the markets reeling and the dollar declining, it looks like a recipe for losses. But one group may find the prospect somewhat appealing nonetheless—Chinese retail investors. China’s regulators are mulling a plan to allow them to invest in US stocks through domestic mutual funds.
That’s a good first step towards freeing up the country’s $2.4 trillion (Rs94.56 trillion) in pent-up savings. But it probably won’t open the floodgates right away.
Beijing has long talked about loosening restrictions and increasing capital outflows to cool its over-heated stock markets. This crack in the dam could help take some of the froth out of the Shanghai market.
The US Securities and Exchange Commission and the China Banking Regulatory Commission plan to allow Chinese banks to design their own US stock funds, according to The Wall Street Journal, which has an exclusive content partnership with Mint.
This modestly expands the existing channels of outside investment for Chinese retail investors. Similar agreements have been signed with Hong Kong, Singapore and UK regulators, and those with the US, Germany and Japan are expected pretty soon.
But don’t expect massive Chinese retail flows to suddenly prop up the slumping US equities markets. Chinese investors’ experience with the few overseas investments open to them hasn’t been too happy. There were high hopes for a limited selection of mutual funds that invested in Hong Kong shares last year, but poor performance has dampened investors’ interests and generated criticism of the banks that offered them.
Still, the opportunity to invest in the US markets should generate interest. The average Chinese stock investor is an eternal optimist. Right now, the buzz in that stock-mad society is all about bottom-fishing for shares that have fallen from their highs. The lure of cheap pickings from the US might just entice them to take the plunge.
Google needs to figure out myspace
Google Inc.’s search business keeps on rolling. Revenues rose 51% in the fourth quarter to $3.4 billion (Rs13,396 crore). But the Internet group is starting to become a victim of its own success.
With its search market share approaching 75% worldwide, further gains will be difficult. Now, the company is having trouble convincing users of social networks to click on its ads. It had better figure this out before a consumer slowdown hits advertising.
Google’s fourth quarter revenue were up 51%, compared with the year-ago period. The Internet search firm’s earnings rose 15% to $3.79 per share.
Google can create some leeway for itself. It is still improving the rate at which users click through on ads. This increases revenue, because advertisers pay more for click-throughs. But the number of paid clicks only grew 30% over the same quarter last year. This is a sharp deceleration from the 45% improvement Google clocked in the third quarter.
But the real test is in social networks. Not only are sites such as Facebook and MySpace growing quickly, but users are spending more time on them. It’s potentially a huge market, if Google can figure out how to turn all the information users provide into dollars. Yet, the company admits it now has a “huge inventory” of ads for these sites.
Unless it can figure out how to get social networkers to click on ads, the inventory won’t shrink and margins will take a hit.
Google executives say they haven’t seen any impact from a recession—yet. But with earnings growth slowing down to 15%, it’s in a race to figure out MySpace. Robert Cyran