Is it time to invest in China?
Thomas Friedman relates that “When I was growing up, my parents told me, ‘Finish your dinner. People in China and India are starving.’ I tell my daughters, ‘Finish your homework. People in India and China are starving for your job.’”
With a banking system that is holding toxic corporate debt from governmentally proppedup companies; a trade war with the US which has been a big drag on economic growth; and tremendous air, water and waste pollution, the question is why would anyone want to invest in China? It is becoming more and more dependent on foreign coal, oil and natural gas, and it seems like there may be better investment destinations.
Well before we write off China, let’s remember that all is not negative; there are some big positives as well. Roger Conrad writes in Forbes: “China is a country many Americans love to hate, whether the subject is geopolitical rivalry, trade or jobs. For some investors, the enmity carries over into an aversion to Chinese stocks as well. That’s a mistake that will only magnify in coming years,” he wrote.
“The world’s second largest economy is consistently expanding at a rate more than 50% faster than US second-quarter growth, which was pumped up by the stimulus of tax cuts. China is also already the globe’s biggest market for myriad products, which is why the vast majority of the S&P 500 does business there. And it’s become the primary driver of multiple global markets as well.”
WHILE WE tend to think of China as the place to buy cheap products, the fact is that they are starting to add value and make a big move into hi-tech. Now it’s well known that China has on more than one occasion been caught stealing technology, but many analysts think that now there has really been a genuine and transparent move into developing technology honesty.
Interestingly enough, China has become a significant investor in Israeli technology startups. According to Globes, “Chinese investors have been involved in 12% of the financing round by Israeli startups this year. This represents an increase in comparison with the numbers for 2015-2017, when the proportion was 7.5% to 9% of financing rounds. The Chinese also participated in six of the 17 large financing rounds ($50 million or more) this year – 35%, also a higher proportion than in previous years. In addition, they took part in a quarter of investments of $20 million or more.”
Another driver of economic growth in China is the wealth of the consumer, and there are sure a lot of consumers there! Walk the streets of any large city in Israel, the US, Europe and you will see Chinese tourists everywhere. While this means they are spending their money traveling, they are certainly buying more and more goods locally in China and that is a huge boon for the economy.
MORE THAN once, I have written about the gold rule of investing; buy low and sell high. Up until a few weeks ago the Chinese stock market had fallen more than 20% for the year. That’s a huge drop. Certainly some of the factors mentioned above were the main drivers behind the fall, but keep in mind that at some point the Trump trade war will end, and that will almost certainly send the stock market soaring. China is the second biggest economy in the world and still sports very strong economic growth, even with the trade war headwinds.
So how can you invest in China? There are plenty of Chinese stocks that now trade in the US. In fact, it has more companies trading on the NASDAQ than any other country – including Israel! For investors who don’t have the ability to research individual companies, there are Exchange Traded Funds (ETF’s) and mutual funds which are linked specifically to Chinese markets. It goes without saying that these can be high risk investments and you could suffer losses; as such, they may not be for everyone. Speak with your financial adviser to see if there is room in your portfolio’s asset allocation for some exposure to China.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill)