Steve Sjuggerud on China’s ‘leader for life’
From Steve Sjuggerud, Editor, True Wealth China Opportunites:
“Steve, there are riots happening right outside your hotel!” my only contact in Jakarta, Indonesia told me over the phone.
“All our meetings are off! Whatever you do, don’t leave your hotel room!” Then he hung up.
I looked out my hotel room window… and couldn’t believe what I saw.
I saw fire. And young people throwing stuff. And young people breaking stuff.
I saw anger. And frustration. Like I’ve never seen in my life.
It was 1998. I had just landed in Jakarta a few hours earlier.
I reflected for a moment, sitting on the edge of the bed, staring at the phone. I was 100% alone, thousands of miles from home, and riots were happening just below me. No friends or colleagues. No cellphone. No Internet. Just me and a hotel room… for who knew how long.
What had I gotten into?
I had gotten into the final days of the 31-year rule of President Suharto.
The Indonesian rupiah had lost 80% of its value in the past year. The stock market was down more than 90% in U.S. dollar terms. The rumor was that only 22 of the hundreds of companies trading on the Indonesia Stock Exchange were solvent.
A day or two later, when the riots dissipated and things calmed down a bit, I had a meeting with the head of Indonesia’s central bank.
(It’s not often that a kid in his twenties (me!) gets a meeting with the most powerful figure in finance in the world’s fourth-biggest country by population. But Indonesia was desperate for help.)
I asked him what his plan was to stop his currency from falling. He replied, “Got any ideas?”
He was only half joking. Indonesia was falling apart.
For much of Suharto’s presidency, Indonesia experienced significant economic growth and industrialization. The country’s economy grew an average of 7% a year while he was in power.
However, after his 31-year reign, Transparency International called Suharto “the most corrupt leader in modern history.” He was accused of having embezzled between $15 billion and $35 billion dollars.
I got a firsthand view of a “President for Life.” So I am biased against the idea, to say the least.
This isn’t just an Indonesia story, as you are well aware. History is littered with examples of how leadership with no term limits has turned out badly – and how the countries involved have ended up worse off.
Hugo Chavez eliminated term limits in Venezuela in 2009. Vladimir Putin circumvented the existing term limits in Russia – he has now entered his fourth term. And, as I’m sure you’ve heard, the Communist Party just eliminated term limits in China.
My good friend Peter Churchouse has been based in Hong Kong since 1980, and he’s been analyzing and commenting on China for nearly 40 years. He recently wrote to his subscribers about China’s new move to abolish term limits:
In the bigger picture, a big danger of the “president for life” approach is the potential for policy mistakes to go unchecked. In other countries, we’ve seen leaders start out reform-minded. But under the golden halo of absolute power, they became an autocratic “bad emperor” without any formal constitutional means of ridding the system of its excesses.
So far, there have been few major policy blunders in China that have had the potential to bring the economic system crashing down. But the imposition of unchecked, unlimited power increases the risks of such errors over time.
Peter is exactly right. The question for us is, how will this affect our China investments?
Here’s the thing…
I launched True Wealth China Opportunities for two reasons: 1) to capitalize on the once-in-a-lifetime opening up of China’s markets to the rest of the world, and 2) to get ahead of the once-in-a-lifetime movement of hundreds of billions of dollars into Chinese stocks over the next few years.
We got in.
And importantly, we intend to get out once these once-in-a-lifetime opportunities pass.
While the lesson of history is that “President for Life” is not a good thing in the very long run… we are not in this trade for the very long run.
Here’s another thing… Stock markets hate uncertainty. And over the next few years that we will be active in Chinese stocks, it appears we will have certainty in China. President Xi will be in power, period.
We still have a great window of opportunity in China. Stocks are still reasonably priced, and outside investors have not bought in yet. We should have a reasonable period of certainty in the markets. And importantly, our reasons for buying are still intact.
Let’s take advantage of this,
Crux note: As talk of Trump’s trade wars with China dominate headlines, investors now have a rare second chance to get in on some of Steve’s favorite plays.
For a limited time, Steve has opened his True Wealth China Opportunities service to new subscribers.
Find out how you can take advantage of this one-time 33% discount right here.