Investment Insider: Investing in China is a waiting game

Ignoring the country's stock market could be an expensive mistake

Sometimes you can be in the wrong place at just the wrong time.

Consider, for example, investors who jumped into the Chinese market in 2007. That was probably the worst time to invest in Chinese equities.

At the time, the Shanghai Stock Exchange Composite Index was hovering around 6,000 points. Today, the index is a smidgen above 2,000 points, which means that investors would have lost around two-thirds of their investment.

However, early entrants into the Chinese market have not done too badly. Someone who invested in China 20 years ago, when the index was around 900 points, would have seen their investment more than double. That equates to a return of around 4 per cent a year before dividends are included.

Chinese shares do not look expensive when compared to other markets. That said, much depends on the ability of the Chinese government to move its economy from one that is heavily dependent on exports to one that will eventually be driven by consumer spending.

It should be said that many developed economies such as ours in the UK and America are predominantly consumer driven. China wants its economy to be more like those of developed economies too, because future growth should then be more predictable.

China's economy is going in the right direction and it is something that we investors should embrace. The prospect of more than one billion consumers with disposable income can significantly improve the performance of companies that are exposed to it. It is for that reason that many UK companies have already laid foundations in the Middle Kingdom. They include many London-listed businesses such as Burberry, Unilever, GlaxoSmithKline and HSBC. Investing in those companies should provide some exposure to China for most investors.

Investors looking for more exposure may want to consider Exchange Trade Funds such as the iShare FTSE/Xinhua China 25. The ETF, which invests in Hong Kong-listed Red Chips and H shares, can be easily bought and sold inexpensively like shares. They can be included in an individual savings account or self-invested personal pension, which will protect any investment gains from tax.

Meanwhile, investors with brokers connected to overseas markets could also look at the many Chinese companies quoted on the Hong Kong, Singapore and US exchanges.

It is hard to ignore the growing band of Chinese consumers. They have already propelled Lenovo into becoming the biggest computer maker in the world.

Elsewhere, BYD, which counts Warren Buffett as one of its investors, has pushed its electric vehicles into the West Coast of America. In the meantime, Chinese carmaker Geely owns the London taxi manufacturer Manganese Bronze.

A question mark still hangs over the ability of the Chinese government to restructure its economy. According to the World Bank, household consumption in China accounts for only a third of its economy a present. By comparison consumers account for around two-thirds of the US economy.

But if China can shift the balance of its economy successfully, then ignoring its stock market could be an expensive mistake.

It will take time for China to make the transition, but investing in China is a waiting game.

David Kuo is director of fool.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
Arts and Entertainment
tv
Sport
Ojo Onaolapo celebrates winning the bronze medal
commonwealth games
Arts and Entertainment
Rock band Led Zeppelin in the early 1970s
musicLed Zeppelin to release alternative Stairway To Heaven after 43 years
Arts and Entertainment
Tracey Emin's 'My Bed' is returning to the Tate more than 15 years after it first caused shockwaves at the gallery
artTracey Emin's bed returns to the Tate after record sale
Environment
Neil Young performing at Hyde Park, London, earlier this month
environment
News
i100
News
Prince Harry is clearing enjoying the Commonwealth Games judging by this photo
people(a real one this time)
Sport
Lionel Messi looks on at the end of the final
football
Extras
indybest
News
Richard Norris in GQ
mediaGQ features photo shoot with man who underwent full face transplant
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Project Manager (HR)- Bristol - Upto £400 p/day

    £350 - £400 per annum + competitive: Orgtel: Project Manager (specializing in ...

    Graduate / Trainee Recruitment Consultant - IT

    £25000 per annum + OTE £40,000: SThree: Orgtel are seeking Graduate Trainee Re...

    HR Business Partner - Banking Finance - Brentwood - £45K

    £45000 per annum + Benefits: Ashdown Group: ** HR Business Partner - Senior H...

    PA / Team Secretary - Wimbledon

    £28000 - £32000 per annum + Benefits: Ashdown Group: PA / Team Secretary - Mat...

    Day In a Page

    The children were playing in the street with toy guns. The air strikes were tragically real

    The air strikes were tragically real

    The children were playing in the street with toy guns
    Boozy, ignorant, intolerant, but very polite – The British, as others see us

    Britain as others see us

    Boozy, ignorant, intolerant, but very polite
    Countries that don’t survey their tigers risk losing them altogether

    Countries that don’t survey their tigers risk losing them

    Jonathon Porritt sounds the alarm
    How did our legends really begin?

    How did our legends really begin?

    Applying the theory of evolution to the world's many mythologies
    Watch out: Lambrusco is back on the menu

    Lambrusco is back on the menu

    Naff Seventies corner-shop staple is this year's Aperol Spritz
    A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

    A new Russian revolution

    Cracks start to appear in Putin’s Kremlin power bloc
    Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

    Apartheid’s sadistic killer that his country cannot forgive

    The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
    Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

    Standing my ground

    If sitting is bad for your health, what happens when you stay on your feet for a whole month?
    Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

    Greene prays for chance to rebuild after injury agony

    Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
    Israel-Gaza conflict: Secret report helps Israelis to hide facts

    Patrick Cockburn: Secret report helps Israel to hide facts

    The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
    The man who dared to go on holiday

    The man who dared to go on holiday

    New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
    Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

    Best comedians: How the professionals go about their funny business

    For all those wanting to know how stand-ups keep standing, here are some of the best moments
    The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

    The Guest List 2014

    Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
    Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

    Jokes on Hollywood

    With comedy film audiences shrinking, it’s time to move on