In recent years, certain reports by western media organisations have implied a false dichotomy between the rise of China and the demise of the US and Europe's economies. In fact, China’s colossal economic growth is not destroying the financial prospects of people in the western world, it is creating more opportunities. This is a country that is becoming increasingly open to investment from outside sources. For those of us looking to make sound investments, with good long-term returns in mind, opportunities in China are plentiful and tremendously exciting. So how can you benefit from robust economic growth in the 21st century’s land of prosperity?
While shares in Chinese companies are not the easiest things to buy, you can purchase them if you look in the right places. In the mainland, foreigners’ ability to buy stocks are limited to the B shares of the Shanghai Composite Index. The good news is that many of the big names, including Petro China, Bank of China and ICBC, offer both A and B class shares. Alternatively, H shares on Hong Kong’s Hang Seng Index and S shares on the Singapore Stock Exchange are aimed specifically at foreign investors. There are also some Chinese companies listed in US stock exchanges. For example, search giant Baidu.com and telecoms mammoth China Mobile are listed on the NYSE. For those looking to diversify and avoid complication there are hundreds of reputable mutual funds which allocate capital on investors’ behalves.
There are plenty of reasons to suggest that Chinese shares will be good investments going forward. China Merchant Securities’ Managing Director, Ronald Wan, suggests that “Now is a great time to buy Chinese stocks”. According to Wan, the Beijing government’s recent monetary policies should make equity markets more stable. Likewise, prolific investment fund manager Puru Saxena, CEO of Hong Kong based Sexena Wealth Management, sees a great deal of value in Chinese stocks. His fund is betting that not only will China’s export sector continue to grow, but also that domestic consumption is going to increase significantly over the next few years. Saxena points out that his fund’s holdings include “supermarket chains, a kitchen appliances manufacturer, a meat producer and an insurance intermediary”, amongst other consumer based companies. The food sector is certainly an enticing prospect. U.S food group Yum! Brands, who own KFC, Pizza Hut and Taco Bell, are in prime position and are predicting rapid growth in revenue from China over the coming years.
As an alternative to investing into Chinese companies, many investors prefer to put their money in big, reputable international firms which have exposure to China’s growing demand for their products and services. If the past decade is anything to go by, infrastructure specialists will benefit from Chinese governmental investment. French engineering giant Alstom are one such company. The firm are currently at the centre of several long-term construction projects in areas such as transportation and power generation. With the growing demand for technology and electrical products, companies with retail exposure to the Chinese market will almost certainly do well. Apple Inc, Microsoft and IBM would seem like the obvious candidates. American semiconductor makers Analog Devices and Qualcomm are also safe bets in this regard. Last year 25% of the companies’ total revenue came from Chinese customers.
From a value investor’s perspective, the financials are looking particularly exciting at the moment. As the on-going global credit crises continue to hit investor confidence in the banking sector, stock prices remain enticing for those looking at long-term capital appreciation. Given their prominent position within the China region, HSBC may well be the best bet. The banking group’s Chief Executive, Stuart Gulliver, recently told shareholders- "Our vision is to build the best universal banking franchise in China and to offer superior China financial services globally". He added that, China’s future growth presents “an unprecedented opportunity to reinforce our global leadership position”. Standard Chartered and other big international financiers are also well placed going forward.
China based stocks, mutual funds and other financial products are clearly good opportunities for savvy investors. But what about hard assets? For most foreigners, buying real estate in China is difficult. Although it is possible to obtain apartments and industrial units in the country’s thriving urban centres, there are strict limitations on what kinds of property foreigners can buy. Furthermore, the bureaucratic requirements of such a transaction would probably outweigh the financial benefits for most people.
Currency speculators probably have more reason to be optimistic about the future. Whilst nobody knows what will happen with the CNY in the short term, the consensus view amongst financial commentators is that appreciation of the Chinese currency over time is almost inevitable. It is now possible to open CNY based bank accounts in London, New York, Hong Kong and other financial centres. The Chinese government have also stated their intentions to fully internalise the currency over the next few years. Therefore, investors with significant holdings in Yuan could see nice, steady gains in the long term.
Ultimately, however, the best place to put your money may well be the commodities which China increasingly demands to fuel its economic ascent. Legendary investor and author Jim Rogers has become well known for his advocacy of natural resource and investment in agricultural products. Rogers convincingly claims that the best way to cash in on China going forward will be commodities. He points out that “as China and other Asian economies develop, they have to buy commodities. They have to buy cotton and nickel, and China doesn’t have much oil”. Moreover, in buying such assets, investors “don’t have to worry about local governors and legal complications”. Given that there are 1.3 billion potential increasingly wealthy consumers in a country which is not especially resource rich for its geographic size, if you own the raw materials that China needs, you are almost guaranteed to be making money in the future.
By Josh Cooper