Investment Insider: Investing in China is a waiting game
Ignoring the country's stock market could be an expensive mistake
Saturday 10 August 2013
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
- 1 Michael Brown shooting: Police shoot and kill second young black man near Ferguson
- 2 James Foley 'beheaded': Isis video shows militant with British accent 'execute US journalist' – and warns Obama of more to come
- 3 Why are UK rail fares so expensive?
- 4 Here’s the damning letter Robin Williams wrote to his Mrs Doubtfire co-star's principal after they expelled her
- 5 Cilla Black defends Cliff Richard: 'I am positive that the allegations are without foundation'
Isis threat: Cameron wants an alliance with Iran
Scottish independence: English people overwhelmingly want Scotland to stay in the UK
Crisis? What crisis? A visiting US doctor gives the NHS a rave review
Russell Brand calls for Israel boycott: Comedian urges big businesses that 'facilitate the oppression of people in Gaza' to pull funding
Ukip MEP calls for reintroduction of death penalty on fiftieth anniversary of last deaths
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
iJobs Money & Business
£450 - £600 per day: Harrington Starr: AIFMD Business Analyst / Consultant - I...
£450 - £600 per day: Harrington Starr: Business Analyst Solvency II SME (Pilla...
£350 - £365 per day: Orgtel: Manager, SAS, Data Warehouse, Banking, Bristol - ...
£500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Linux, SQL Se...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony