Is it time to in­vest in China?

YOUR IN­VEST­MENTS

The Jerusalem Post - - BUSINESS & FINANCE - • By AARON KATSMAN aaron@light­house­cap­i­tal.co.il.

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)

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