Wednesday, August 5, 2009

Why invest in China?

China is one country that I always tell my clients to invest. This advice is nothing new or fresh as everyone might be telling them the same thing. But why are they saying this? I might be able to share a bit about the potential of the Chinese Economy here.

1. The Robust Growth Rate
* 2003 - 8% / 2004 - 9.1% / 2005 - 9.1% / 2006 - 10.2% / 2007 - 10.7% / 2008 - 11.9%
* On July 15 this year, China reported a 7.9 percent growth rate for the second quarter of 2009 compared to the same period a year earlier. IMF forecasted that China will continue to grow 8.3% into 2010.
* So do you want to invest in a country that grow or one that remains stagnated?

2. The strong Foreign Reserves
* China is the country with the strongest Reserves standing at $2,132 billions USD as at 30th June 09.
* Singapore has $173billion and USA only $42 billions.
* Do you want to invest in a country which has more money in its pocket to spend or a country that just print money to spend?

3. The middle class and the mass affluent
* Before 2000, most of the Chinese belongs to the poor or the lower middle class.
* Today, many of the chinese had entered into Mass Affluent earning ~200k RMB yearly.
* These are the people who are going to spend and develop the China consumerism story into the future.

4. Urbanisation and development of rural areas
* The Chinese governemnt spend a fair deal of their reserves to reinvigorate its economy of which one way is to build infrasture and developing the rural areas.
* The $585bn USD stimulus package is expected to boost investment and consumption.
* The $700 million rural population receives subsidies for buying household appliances such as washing machines or refrigerators, etc.

5. The Chinese Character
* A typical chinese has 2 sides. He can be a saver for a moment and become a gambler the next.
* They can save and save but when it comes to seeing others making money, they will not want to miss the chance and jump right in.
* This is one reason the stock market is able to rise to a point of high PE and yet people are opening up new investment accounts at the same time.
* It has a high beta if compared to developed markets. US market goes up 1%, the chinese market may goes up 2%.

China is not perfect and have their problems too.
* There is a big imbalance between the rich and the poor which may cause sociology problems.
* The pressure to revalue their yuen to make their exports more expensive.
* The overheating situation in certain provinces especially on properties.
* The large amount of USD bonds they are holding, etc etc...

Having said all these, I'll never recommend anyone putting all eggs into one basket. I'm a believer of discipline investment using asset allocation and geographical/sector diversification. A single country fund should not take up more than 20% of your overall investment portfolio.


Anonymous said...

What you have said is only half the story, the top of the iceberg. As you are not experienced with China, let me share with your readers why I said I do not recommend investing in China. This comes from an inside knnowledge of what is happening inside China, inside their factories, their commerce and their legislatures. Take Jurong Tech as an example, a nice Singapore company but I was there and saw with my own eyes what is happening. That is why I always advise people not to invest in these companies. Now it is surfacing. Put it this way, if 99% of the people working there are pinching your wealth day and night, why do you want to put your money there? Never mind if the China economy is booming, it does not mean your wealth will be booming because many are siphoning it away from you to make themselves boom. Get it?

Anonymous said...

Only Adrain will recommend. This is follow the crowd strategy.The stocks are over priced!!!!!