... and I know of the perfect share to take advantage of both sides...
The Gulf of Guinea off the west coast of Africa is one of the most dangerous waterways in the world. Its sea lanes are infested with growing numbers of drug smugglers and human traffickers. Illegal immigrants use this waterway to make for the promised land of Europe amidst the traffic of rogue trawler men and the various militant groups that operate in the region.
But it is also where one of the biggest profit opportunities in the world is right now, because the still under-developed region is expected to provide a quarter of all U.S. oil imports by 2015 as America tries to reduce its dependence on the volatile Middle East.
Of course, we’re well ahead of the average investor. We have already positioned ourselves to profit from America’s charge into the region through our investment in a certain pan-African conglomerate. This particular company controls one of the most important ports in Equatorial Guinea, through which a lot of that oil is going to pass... it could soon be set for boom times.
You see, the Americans are deadly serious about securing West Africa’s oil for themselves - they don’t have the luxury of standing by because everywhere you go across Africa, you bump into the Chinese. The Asian giant has been scrambling across the continent in order to secure the supplies of raw materials that feed its massive manufacturing machine - and more than anything, they’ve been after oil.
The Chinese are paying big money for Africa’s oil...
Just last month, the Chinese agreed to provide up to $50 billion in infrastructure development financing to Nigeria. The loans weren’t explicitly tied to access to Nigeria’s oil reserves, but you don’t need to be the chairman of an oil company to see what the Chinese are up to - Nigeria is Africa’s biggest oil producer.
The Chinese don’t really have a choice though; their demand for oil is continuing to grow at a phenomenal rate despite all the talk of an economic slowdown - just last month it rose by 25 per cent compared with the same period last year.
With the Chinese willing to spend that kind of money in the hope of securing access to Nigeria’s reserves, you can bet that America is going to have to pay through its nose to get its share of the region’s reserves. In fact, they are so determined to secure the region’s oil supply that they have now sent in the troops. The U.S. Navy has now started deploying ships in the region in order to help west Africa’s mostly ill-equipped Navies take effective control of the region’s waterways. That’s the U.S. Navy’s first serious engagement with the region since it operated an anti-slavery squadron in Cape Verde in the 1840s.
The U.S. admirals are trying to put a cheerful face on it - they’ve branded it "good boat diplomacy" rather than "gunboat diplomacy". No doubt about it though - the guns are there; and they’re meant to make it easier for the U.S. oil giants like ExxonMobil and Chevron to get the oil out of countries like Nigeria, Angola and Equatorial Guinea.
Critics of US foreign policy see the increasing military engagement with Africa as part of an aggressive agenda to secure energy supplies and counter China’s growing influence on the continent - and they’re probably right. In fact, the U.S. has recently created a new combatant command called AFRICOM, which underscores the region’s growing strategic importance to Washington.
We look set to see a major contest for influence on the continent between the United States and a fast-rising China - but it’s going to be fought with the promise of economic incentives more than with bullets. So, unlike the U.S.-Soviet power games in Africa that left that wreaked havoc on the continent during the Cold War, this time the big winners are going to be the African countries themselves.
This share is a screaming BUY and I’ll tell you exactly what it is in a moment...
When you look at it that way, I think that the skittish investors who have sold out of this stock recently are stark raving bonkers. This is a company that is set to ride one of the biggest economic trends of our lifetimes and you can get in right at the start of it. Remember, this is a company that has investments in the sort of industries that Africa is going to need to develop - infrastructure, bottled water, transport and even landmine clearance.
The company’s shares have fallen recently, not just because of the market weakness we have been seeing, but because of a $15 million loss that the company declared for the year ending September 30th 2007. We aren’t fazed by that though - most of that loss was the result of the company’s heavy investment in developing its new and existing businesses. Most of those losses were also incurred in the period before we invested in the company last August and we expect the company to begin seeing returns on those investments going forward.
There’s oil in Merry Old England too...
China has been looking for oil in other places as well. One of its sovereign wealth funds, the State Administration of Foreign Exchange (SAFE) has just bought a £1 billion stake in BP. That follows its £1 billion investment in French oil giant Total. What are the Chinese up to? They’re obviously not trying to gain control of these companies - they’re smart enough to know that Western governments are not going to let that happen. They learned the hard way in 2005 when the U.S. government blocked a bid by China National Offshore Oil Company (Cnooc) to buy American oil company Unocal.
What the Chinese want is a seat at the international oil table and they will probably use their stakes in European oil giants to encourage joint development projects between its state firms and the western oil companies that have received some of its "friendly investment." Over the medium term, that is probably going to be good news for China’s oil companies as it will give them access to the expertise and oil blocks of the oil majors.
NYSE may list on Shanghai exchange
It isn’t all fire and ice between the U.S. and China though. Today, the South China Morning Post reported that the New York Stock Exchange (NYSE) may become the first foreign company to sell shares on China’s A-share market, citing China Securities Regulatory Commission officials.
China has been trying to persuade major multinationals to list on its domestic markets in order to establish itself as a major financial player and to help meet the demand for high-quality investments among its local investors. Apart from the NYSE, the Shanghai stock exchange is also considering listing multinationals such as HSBC, Coca-Cola and Siemens. Here at Profit Hunter, we’d like to see that happen because it speeds-up the process of opening-up China’s markets to foreigners. We have stayed out of China so far, because the "B-share" section of the Chinese markets, which is accessible to foreign investors has really been little better than a back-alley casino with a lot of very suspect companies listed. The entry of major multinationals onto China’s markets will probably mark a move towards higher levels of transparency.
And in the markets...
And in today’s market action, Asia managed a small rebound after yesterday’s sharp sell-off. In Japan, the Nikkei rose by 0.6 per cent, while Hong Kong rebounded by 0.4 per cent. China’s benchmark Shanghai A-share Index was up a more impressive 1.6 per cent, while India’s Bombay Sensex gained 1.2 per cent. Our favourite market, Vietnam, declined by 1.23 per cent. The rebound in Asia’s markets was led by energy companies as the price of oil hit a new record high of $113.66 a barrel yesterday. The current spike in oil prices is - at least in part - a result of deliberate policies being pursued by the Opec oil cartel to maximise profits.
Oil might be at a record, but the Gulf markets turned in a mixed performance today. Saudi Arabia’s Tadawul Index was down by 0.5 per cent and Kuwait was down 0.3 per cent. Bahrain - on which our Gulf merchant bank Investcorp is listed - rose by 0.3 per cent; the UAE was up by 0.9 per cent and Qatar jumped by 3.2 per cent. The mixed performance of the Gulf markets as oil hits a record simply underscores that there is much more going on in the region’s economies than just oil.
Now... back to that screaming BUY...
Regular readers of Profit Hunter will know that I don’t use the term: "Screaming BUY" often - hardly ever in fact - which, will perhaps give you all an insight as to the strength of my feelings for this share.
In fact the only other time I use the term: "Screaming BUY" is in reference to another of my hottest tips, involving a certain emerging market.
For some time now, I’ve been telling investors about the over-whelming benefits of both these investments, and why I believe there are no better economies to be in.
Click here and let me take you through the overwhelming benefits of these emerging markets and show you exactly what these investments are right now... you’ll soon be screaming BUY too...
Regards,
Manraaj Singh
Editor
Profit Hunter
