Five ways to invest in China for 2007 - Exchange traded funds (ETF's), Mutual funds, Chinease companies..
Companies / Investing Jan 02, 2007 - 11:03 AM
Last year was a happy one for domestic stock market investors. All the major U.S. indices were up in 2006. But 2007 might not be a repeat.
Reason: The U.S. economy has been slowing rapidly. In the last week, the stream of discouraging news has just kept coming. Four examples:
The Commerce Department said gross domestic product (GDP) increased at an annual rate of 2% in the third quarter, down from 2.6% in the second quarter.
The Conference Board's index of leading economic indicators rose by just 0.1% in November. Over the past six months, the index is up a meager 0.2%. According to Ken Goldstein, one of the group's economists, 'The slower economy of the second half of 2006 might continue into the first half of 2007.'
The headlines said that durable goods orders increased by 1.9% in November. But once you back out transportation orders, durable goods orders actually fell by 1.1%. In other words, orders were weak for just about everything else.
The Philadelphia Federal Reserve Bank's manufacturing survey came in at a negative 4.3 for December. That's the third time in the past four months that this fairly important data showed a rapidly slowing economy.
Heck, most of the 2007 U.S. GDP estimates I've seen run between 1% and 2%.
I don't know about you, but that type of growth rate doesn't get me excited. Not when there are parts of the world expanding three, four, even five times as fast! For instance ...
China Is Poised to Continue Its Relentless Expansion
While the U.S. has been looking weak, the Chinese economy is growing like a weed. The People's Bank of China issued its new 2007 forecast last week, saying it expects the country's GDP to expand 9.8% for the year. Ma Kai, the chairman of China's main planning agency — the National Development and Reform Commission — said China's “relentless expansion has yet to be stopped.” How true!
Although 9.8% is slightly less than the 10%-plus growth China has been enjoying, that kind of rise is still pretty darn impressive. And remember, the Chinese government has consistently underestimated its country's growth by a wide margin.
So, ask yourself this: Will you make more money by investing in the U.S., which is supposed to expand 1% or 2%, or by investing in China and its 9% or 10% growth rate?
There are never any guarantees in the investment business, but there is no question that China is brimming with opportunities. So, in my book, the real question is how to get started.
Here Are the Five Basic Ways to Invest in China
A lot of investors recognize that Asia is where the growth is these days. But for some reason, they never put any money to work in foreign markets. I can't understand why, especially when it comes to China. After all, there are plenty of ways to invest ...
Exchange-traded funds: We've been telling you a lot about ETFs lately. That's because these investments can give you a diversified stake in a particular sector, index or country in one shot. These investments have soared in popularity, and there are several that can give you direct exposure to China and its mega-growth neighbors.
Mutual Funds: ETFs are great, but don't forget about traditional, actively-managed mutual funds, either. Some of my favorites are U.S. Global's China Region Opportunity (USCOX), Fidelity's China Region (FHKCX), and T. Rowe Price's New Asia (PRASX).
Chinese companies on U.S. exchanges: Did you know that 78 Chinese companies are listed on the New York Stock Exchange? In fact, some of the largest and most profitable companies in all of China can be found on U.S. exchanges. for example, own China Mobile (NYSE: CHL), China National Offshore Oil Company (NYSE: CEO), and Guangshen Railways (NYSE: GSH).
Chinese companies on foreign exchanges: If you've never bought a stock on a foreign stock exchange, you'll be surprised at how easy it is. All you need is a broker with an international trading desk and the ticker symbol of the stock. A lot of really attractive Chinese companies are listed on the Hong Kong Stock Exchange, but some can also be found on the exchanges in Singapore, London, Shenzhen, and Shanghai.
U.S. companies doing big business in China. U.S. companies have been doing business in overseas markets for a long time. But these days, some American firms are getting the bulk of their revenues from outside the U.S. For example, both Yum Brands (runs Pizza Hut, Taco Bell, and KFC; NYSE: YUM) and Las Vegas Sands (NYSE: LVS) garner more than half of their sales from outside the U.S. My point is that even carefully selected U.S. companies can give you very significant exposure to China.
Which of these investments is right for you? The answer depends on a lot of things: How aggressive you are, whether you're more of a do-it-yourselfer, and how focused you want to get.
But, in my opinion, all of these Chinese investments stand to do very well in 2007. So make it your New Year's resolution to add some Asian to your portfolio this year.
Best wishes,
Tony Sagami
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