Is it time to invest in China stocks?
Ten years ago the British handed control of Hong Kong back to the Chinese. This was the start of massive changes to that economy. State controlled companies were placed in private hands and small business started to blossom. The Chinese economy started looking more and more like a free market.
The result was incredible growth.
China has more than 1.8 billion citizens and as their economy develops, the middle class grows. Now the GDP of China is expected to increase more than 10% every year. This economic growth is so exciting that Jim Rogers, one of the best money managers of our time, uprooted his entire family and moved to Asia. When asked why, he said “I do not want to sell Chinese stocks. I want to own them forever and I want my [four year-old] daughter to own them.”
Now that’s what I call a long term investment strategy.
Over the last few years, investors have made tons of money in the Chinese markets. If you had bought iShares FTSE/Xinhua China 25 Index ETF (FXI) at the start of 2005 you would have made more than 315% on your money by October 2007.
However the excitement in the Chinese markets got a little out of hand last year. As a matter of fact, in May I warned of a near term bubble. As it turns out I was right . . . but a little early on my call.
Currently, China is emerging from an economic slumber. Politically, they’re a communist country. Economically, they’re waking up to a free market revolution. I remember the influence China had when I was working in Singapore. It included language, social customs, food, and even economics. Now they’re influential the world over.
In the short term, the outlook appears uncertain. Some economists believe the economic slowdown in the United States could spread to emerging markets. In that scenario, the Shanghai market might fall further. Some advisors have gone as far as suggesting that we avoid the Chinese markets entirely.
I think they are horribly wrong and a bit shortsighted.
Unless you’re focused on very short term trading, now is the time to go long China. The country is in the early stages of a multi-decade economic expansion. Their economic growth is second-to-none, and their infrastructure is still in the early stages of build out.
Don’t let the recent market correction scare you away. Think of it as a great way to expand your emerging market exposure at a 30% discount. A good way to get broad exposure to the Chinese market is through the iSharesFTSE/Xinhua China 25 Index ETF (FXI).
Category: Foreign Markets
