Ambitious new projects to develop the steel and natural gas sectors will dramatically boost production. China and Russia are rushing in to secure supplies. But sanctions prevent the US from investing in Iran.

Sara says ongoing suspicion over Iran’s nuclear program will keep it off the investment table for much of the Western world…

Over the past several months, the investment world has turned its ever-roving eye on the Middle East and North Africa.

Since July, four new exchange traded funds have hit the market focusing on these regions. They are the WisdomTree Middle East Dividend Fund (NASDAQ:GULF); the Market Vectors Gulf States Index ETF (NYSE:MES); the PowerShares MENA Frontier Countries Portfolio (NASDAQ:PMNA); and the SPDRs S&P Emerging Middle East & Africa ETF (AMEX:GAF).

But the one thing lacking in these investment vehicles is Iran.

Of course, the U.S. has decreed it will not make investments in Iran, who it considers a state-sponsor of terrorism. That’s nothing to fool around with.

While much of the Western world stands firm, other nations, like China and Russia aren’t quite as righteous. Russia has repeatedly stood against strong sanctions in response to Iran’s nuclear program… as has China, but for different reasons. Iran and Russia have a history that goes back to before the Cold War. But China…

Iran is the world’s fourth largest oil exporter, and China, in early December 2007, signed a $2 billion deal with the country to secure oil supplies.

Deals like this have been a welcome balm to Iran’s struggling infrastructure. U.S. and UN sanctions have taken their toll, and foreign investment has been nearly non-exsistent.

But things may be changing in Old Persia… The country just announced that it will increase its annual steel production to 15 million tons, representing a jump of 50% from current levels.

The steel industry hasn’t had a boost this big since March 2005 when a group of European and Iranian banks funded the Hormuzgan Steel project with $800 million. With imported steel accounting for about 40%-50% of demand, and demand across the Middle East rising significantly with the region-wide building boom, rising prices are creating a real problem for infrastructure expansion.

Iran has eight new major steel projects in the works.

It’s also planning on spending $30-billion to expand the South Pars natural gas field. This investment could reap as much as $22.3 billion a year by doubling annual production to 68 million tons.

Without a doubt, Iran is a major player in the Middle East, and will continue to be. It has a $13-billion sovereign wealth fund created from its oil wealth. And some of its major investments have been in financial institutions in the Middle East.

But will Western investors ever get a chance to make money off Iran’s growth, as it they have in Dubai, Egypt and Israel? And should they, for that matter?

It’s a philosophical question that I can’t answer. And it gets even harder when you hear that Iran is sharing its nuclear technology with Nigeria… A technology that the country repeatedly insists is for peaceful power generation while refusing to halt its uranium enrichment and submit to the International Atomic Energy Agency’s full inspections. (Though the IAEA does have Iran’s Natanz facility under video surveillance.)

In late August, Iran announced it had 4,000 centrifuges working on uranium enrichment, and another 3,000 being installed.

The whole situation, for investors and politicians alike, is scary. And while there may be opportunities in playing companies investing in Iran, like Sinopec (NYSE:SNP), the Chinese firm that inked the $2 billion oil deal, and Fortis Bank (Brussels:FORB), who helped finance the Hormuzgan Steel project, danger still abounds.

That will keep Western investors (most, anyway) on the sidelines, and pure Iranian plays off the investment table.

Source: Emerging Iran: Danger or Opportunity?

Justice gave six reasons why China is a buy now. These included the recent correction in crude oil prices, China’s high level of personal savings and the country’s massive foreign reserves.

Today’s Financial News editor J. Christoph Amberger says Justice is wrong about China. The Shanghai and Shenzhen stock exchanges have plummeted since the opening of the Beijing games. J. Christoph says China now looks more like Japan in the ’90s than a strong buying opportunity…

Olympic medal counts look different to Americans than they look to the rest of the world. In the US, all medals count equally. The team with the most gold, silver, and bronze medals “wins” in the standings. Elsewhere, it’s just the number of gold medals that determines who leads the pack. Which may explain why China feels its superiority complex validated with 17 gold medals (vs. the United States’ 10)… while Americans really couldn’t care less about leading with 29 (vs. 27) total medals.

Still, for a country that just put on the most expensive halftime show ever, with lip-syncing girls, computer-generated fireworks, and thousands of young men in light-studded green “fruit suits” (as my teenage son called their skintight garbs), the stock market is sure looking like the last flea-bitten chihuahua in the pantry of a Korean short-order cook.

If China is leading in the medals count, the fruit-suit optimism isn’t filtering through to investors. Both the Shanghai and Shenzhen Stock Exchange have simply plummeted since the August 8 side show. On Wednesday, the Shanghai Stock Exchange closed at 2,470 points, falling 135 points to close at a 20 month low after touching an even lower intra-day low of 2,372. The Shenzhen exchange slumped more than 6% to close at 698 points.

Shanghai set an all-time record last October at 6,092. That’s a drop of 3,720 points in ten months – a loss of 61% at today’s lows.

The last time I saw an index plummet like this was 1990, after Tokyo’s Nikkei had posted a record high at 38,912. The only difference: It took the Nikkei fully five years, until April 1995, to fall by this amount. China managed this in just 10 months.

There are now accusations that the government of causing the problem by misleading traders. (I’m glad this very Western tradition has finally made it to China…)

But here’s the odd part: There are some Western stock gurus who are not worried. In fact, one just came up with six reasons to buy China.

Let me summarize:

Reason to Buy China #1: The Silly Season Is Over. Now that the frenzy has subsided, real values are starting to show up again. The hot money has burned itself out, providing opportunities for those who see longer-term value and aren’t out to just flip a quick buck.

Reason to Buy China #2: Oil Is Coming Down. With oil backing off, China and India can breathe a little easier. The fear that high-priced oil might kill the Asian miracle is lifting. That gives them more time to tap alternative energy solutions and build economic strength at home.

Reason to Buy China #3: The Locals Are Optimistic. A recent survey from the Pew Research Center shows that most Chinese feel positive about where their country is headed. According to the survey, 86% are “content with the country’s direction.” (That’s up from just 25% six years ago.)

Reason to Buy China #4: The Growth Is Still There. China moves up the quality food chain. As China gets better at enforcing intellectual property laws, its high-tech skills will only increase… and profit margins, too.

Reason to Buy China #5: Personal Savings and Domestic Demand. Perhaps even more impressive than China’s long-term growth rate is the personal savings rate.

Reason to Buy China #6: Huge Foreign Reserves. China has somewhere between $2.3 trillion and $2.4 trillion in excess reserves.

Let me respond why I am hesitant to wear that fruit suit of optimism:

1) The “silly season” is over. If China managed to double and double again in two years on that supposedly “bad” hot money… where is the money coming from that will power the Shanghai to recover even 20%? Japan’s Nikkei has a cautionary tale to tell about markets that see the hot money born out. For the Nikkei, that meant a low of 7,831 in April 2003 – 80% below the record high. For the Shanghai, that would mean a level of 1,218 – another 50% drop. (Given the accelerated failure rate the Chinese, we could see this level within the next 16 months!)

2) Oil may be coming down, relieving some pressure on wafer-thin Chinese margins. But labor cost – China’s biggest competitive edge – is going up. So are environmental regulations… healthcare cost (they say breathing the air in Chinese cities is the equivalent of smoking 3 packs of cigarettes a day)… and unemployment.

3) Local optimism. May I point out that the people are fickle. Consumer confidence is the least reliable indicator of an economy’s health. More importantly: investors are chafing with just over 60%  losses under their belts… and more to come!

4) Growth will be there as long as Americans and Europeans place orders. Recession, anyone? Some analysts like to argue that the Asian economies have “decoupled” from the West. Someone must have forgotten to tell Japan…

5) Personal savings and domestic demand. The latter may be there… and is usually a prelude to the destruction of the former. Plus, those personal savings have taken a beating since Chinese citizens transferred their renminbis from their passport savings to their stock brokers by the billion each week last year. Add in inflation and tally it all up once you account for two months of forced idling of factories and work forces, and an overall low average income of just $2,025 a year (in 2006)… and those personal savings factor in far less than you might think.

6) Huge foreign reserves may be more than made up by huge non-performing and “special interest” loans… a looming real estate crash… and of course the potential for the predicted devaluation of these reserves, most of which are kept in dollars. (May I also point out that Japan’s incredible foreign reserves did not help it one bit from 1990 to 2005.)

In short: China is a potential train wreck in the making! Analysts who predict Armageddon for America based on a 20% drop in the Dow and discount a 60% drop in the Shanghai Stock Exchange may just have sand in their slide rules. Those who buy wholesome into official Chinese numbers and believe the U.S. government manipulates GDP numbers may not do their readers a favor.

The big Chinese companies that trade as ADRs, such as China Life Insurance Company Ltd. (NYSE:LFC), China Petroleum & Chemical Corp. (NYSE:SNP), and China Telecom Corporation Limited (NYSE:CHA) have declined at a far less precipitous clip than their home markets.

Chinese solar stocks such as LDK Solar Co. (NYSE:LDK), China Sunergy Co. (NASDAQ:CSUN), and ReneSola Ltd. (NYSE:SOL) have actually risen in price as the Shanghai Exchange collapsed. Then again, they move with their global industries… not with China.

But while I am getting more bearish on China’s medium- to long-term prospects by the day, I think there are a small number of Darn Good Stocks you can make some serious money with.

P.S. J. Christoph says Today’s Financial News’ new trading service, Hot Stock Confidential, is currently pursuing a small company with key technology set to profit from big demand in China. This keystone technology will reach deep into China’s interior – tapping into its rural market and creating wealth on a scale like never before. It has been earning between $80-$100 million a year on total revenues of $450-$550 million in revenue.

The company has just come back up from a bit of a dip, and is charging forward with gains of 8% in a day. Hot Stock Confidential is already up 20% over the recommended entry price. But you still can buy it for less than five bucks. Read on here for more more details on how to profit from this China success story.

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Consider China the mother of all direct and indirect subsidies. Especially when it comes to the staging of the Beijing Olympics—the greatest coming out party a totalitarian government has ever staged.

Not that the others didn’t try. Hosting Olympic Games tends to be a fiscal nightmare for the host. The Athens Olympics resulted in massive budget deficits for Greece. Australian taxpayers will be paying off Olympic debt from the 2004 Games for a decade to the tune of $32 million a year. Even the Salt Lake City Winter Olympics in 2002 left Utah with a $155 million deficit.

The true cost of the Beijing Olympics will dwarf everything previously seen. But thanks to China’s inscrutable web of direct and indirect subsidies, their full extent will be as difficult to determine as the true cost of Chinese labor.

Beijing just added another layer. It will be carried by China’s heavy industry and power plants. Dozens of heavily polluting factories in Beijing and Hebei Provinces—scheduled for closure over the next two years—will be permanently closed before June.

Temporary shutdowns of other industries will last from July 17 until September 20 and will affect the neighbouring municipality Tianjin and the provinces of Hebei, Inner Mongolia, Shanxi, and Shandong. These provinces represent an area larger than France, Germany and Italy combined.

This will have a major effect on the electronical manufacturing industry and those companies who have been outsourcing their production to China. The closures will also reduce the supply of components, good and services to the affected industries. Steel maker Beijing Shougang Co. estimates that output this year will fall by 16% from 2007.

The hardest hit industries include electricity, petrochemicals, as well as coal and cement producers.
Chinese officials are just as reluctant to release details about the full extent of the shutdowns as they’d be to announce that torturing puppies had been added as an Olympic exhibition sport.

Idling production facilities will hit major companies like Eastern Petrochemical Co., China’s largest manufacturer of polyvinyl acetate. Beijing Eastern is owned by China Petrochemical Corp., or Sinopec (SNP:NYSE). Sinopec’s first-quarter profits already came it 70% lower than last year’s.

If you need a reason to be cautious around Chinese stocks this year, look no further than the effect of the Olympic shut-down on third-quarter earnings.

Source:  China Closures Spell Q3 Trouble

The case for the target-price increase of 20% was very clear.

“The math is really simple here,” Fitz-Gerald said in an e-mail interview from China, where he was heading an investment-research tour. “We are burning through supplies at a rate that’s four times to five times faster than we’re discovering new reserves. Throw in a few [surprises] … perhaps a terrorist event …and add in the accelerating use of oil and gasoline in Third World countries, and we have the recipe for far higher prices. That’s already in the oven.”

Crude-oil futures jumped up over the $123 a barrel level yesterday (Wednesday) – closing at an all time record – as worries about worldwide oil supplies continued to sweep away any good news in the energy sector. In fact, prices have soared more than $11 a barrel – or 9.8 % – over the past four days alone, reaching back to last Thursday, MarketWatch.com reported.

But it wasn’t the price increases that prompted Fitz-Gerald to boost his oil-price target. In fact, he did that last week. In addition to the proprietary strategy he uses to project market prices, Fitz-Gerald said he relied on some of the observations he’s been making as part of the investor trip he’s leading through China.

In that country, all it takes is a stroll down the street to see that the demand for oil and gasoline is going to increase far faster than most analysts would ever believe.

“Nowhere is that more evident than China where I’m traveling now,” Fitz-Gerald said last week in an e-mail from Mainland China’s capital. “Beijing alone is adding 14,000 cars a day. Across China, the number is obviously higher. [The] same [is true] in India, but I don’t have the figures at my fingertips. Then there’s the other side … evidence suggests that OPEC reserve figures may be artificially high. Imagine what’s going to happen when people figure out that there really isn’t as much oil as everybody thinks. $225.21 is not out of the question … after we get to $187.”

Alternative energy is the only answer, Fitz-Gerald says. But some of that is years from being commercially viable – cheap and reliable enough to be affordable to, and used by, mainstream consumers.

“Barring the introduction of a truly [alternative] and inexpensive technology, this is going to get ugly … and very pricy before it gets better,” Fitz-Gerald wrote. Investors need to be “long energy, long commodities” for right now, and for the foreseeable future.

China is doing all it can to overcome the massive energy deficits that it faces. One such project is the massive Three Gorges Dam, which Fitz-Gerald had visited the day of his interview with Money Morning.

“It’s surreal how big this project really is,” he noted.

Fitz-Gerald sees oil-and-gasoline prices going higher – much higher. And four factors will be the key catalysts. They are:

• Obfuscation by OPEC: Members of the Organization of the Petroleum Exporting Countries have been misrepresenting their reserve capabilities for years. The key players have reported no new discoveries for decades.

• Terrorism Threats: The odds that a terrorist act will interrupt oil supplies – in the near term or the long term – are higher than most security experts would ever publicly confirm, Fitz-Gerald says. And this is especially problematic because of the double-whammy effect: Damage to a major pipeline or a strategic refinery could crimp supplies just as demand is continuing to escalate.

• The Dollar Doldrums: Oil is priced in dollars. And the dollar is in the dumper. Indeed, rising inflation and falling interest rates have put the greenback into a steep downward spiral. And if prices keep rising, and if Federal Reserve policymakers keep cutting short-term interest rates, the dollar will continue to lose altitude against other key global currencies. OPEC members will counter the greenback decline by marking up the price of crude, causing prices to increase still more in dollar-denominated terms.

• Cruising Goes Global: As an increasing number of households in China, India and other advancing overseas economies join the world’s middle class, they’ll start making such basic purchases as electronic goods, houses – and automobiles. The fact that China’s oil imports jumped 18% in one month is evidence enough that this is happening. And the fact that leading India automaker Tata Motors Ltd. (TTM) has unveiled a $2,500 car, the Nano, underscores that international carmakers are looking to recruit a whole new group of motorists. The fallout: For U.S. refiners, oil will first get lots more expensive, and then supplies will start to dry up as countries opt to halt exports and keep the precious black gold for themselves.

Oil Becomes a Strategic Asset

Oil prices have made a major move in the past five years – just as the emergence of China, Russia and several other key economies transformed crude-oil pricing into much more of a global game. High prices have sent cash pouring into the coffers of oil-producers in Asia and the Middle East. Many countries have used that capital to finance global investment initiatives, creating government-controlled “sovereign wealth funds” to do their bidding.

Little wonder crude oil has become a strategic asset – as well as an energy source.

“As oil and other fuels become a more and more precious resource, OPEC countries, China, Russia and others will begin holding back oil, instead of putting it into the market,” Fitz-Gerald says. “That’s going to be devastating in the short-run.”

Some big oil consumers such as the United States have lobbied OPEC to boost production in order to bring market prices down. But it’s done no good: Members of OPEC have said over and over that market supplies are adequate and that the surging prices are not something that they can control.

China – a growing consumer of oil – has embraced a different strategy: To create captive supplies of crude, China has demonstrated that it’s more than willing to endure controversy and cut deals with countries U.S. refiners either can’t or won’t deal with. China Petroleum & Chemical Corp. (SNP), and PetroChina Company Ltd. (PTR) – two of China’s biggest oil companies – have invested in such political hot spots as Africa and Iran.

The Chinese government, desperate to lock down supplies of such crucial natural resources as metal ores and crude oil, has sealed deals with Sudan, Chad and the Congo. African Business reports that trade between Africa and China has advanced at a rate of 40% a year since 2001. In 2006, bilateral trade between the two was $50 billion.

Already, 14% of China’s oil imports come from Angola. About 60% of Sudan’s oil goes to China.

To understand why you should heed Fitz-Gerald’s observations, it’s important to understand just how far ahead of the pack he’s been – and how far ahead he remains – when it comes to predicting long-term energy trends and investment opportunities.