Aaron Katsman 58.
(photo credit: Courtesy)
Chinese President Hu Jintao’s visit in Washington has brought increased
attention to relations between the United States and China. While those
relations are chilly at best, the state of the Chinese economy is anything but.
As the world continues to be mired in an economic slowdown, and even the rosiest
of scenarios has stronger growth returning in the second half of 2011, China’s
10.3 percent GDP growth in 2010 and similar growth expected this year sure seems
attractive for investors. China has become the world’s growth
Economist Larry Kudlow wrote in the National Review
magazine recently reported that the number of US companies in the world’s top
500 fell to the lowest level ever, while more Chinese firms than ever made the
list. Thirty-seven Chinese companies now rank in the top 500, including nine new
entries. Meanwhile, the number of US firms has fallen to 140, the lowest total
began the list in 1995. This is not good.
surpassed the US as the world’s biggest automaker in the first half of 2009,
with June sales soaring 36.5 percent from a year earlier.
registered 6.1 million car sales for the first half of the year. That way
outpaced American sales, which were only 4.8 million.”
capital-gains tax and low corporate taxes, China has created a very friendly
business environment. Within this environment, a new middle class has emerged,
which will probably be the largest middle class in the world in the
In spite of all the success that China is
enjoying, there are still potential roadblocks ahead.
Lack of corporate
transparency, potentially high inflation and a banking system that has lent
money for decades to money-losing companies could burst the China bubble. The
potential banking crisis in China could make the US subprime debacle seem like
In addition, China faces a major water
Investor Jim Rogers said in a Money Morning interview: “China
has a huge water problem. In Northern China, they’re running out of water. They
know this and they’re working on it, big time. But if they don’t solve it, or if
they don’t solve it in time, then China – as you put it – has
Over the last four years, Chinese stocks have seen huge rallies
and equally steep drops. I get many calls from clients wanting to know what
options are available for investors to gain exposure to this market. Investors
need to remember that past performance is no indication of future results. An
investment in China should be part of a broader investment strategy and is full
For those investors who are looking at China, here are three
ways you could consider investing:
This is an indirect way of
investing in China.
As China continues to record strong growth and build
its infrastructure, there should be increased demand for basic materials. Couple
that with more disposable income from the new middle class, which should
increase demand in cattle and other agricultural commodities, and China could
singlehandedly pull global commodity prices higher.Stocks, ETFs, mutual
For investors who want to be part of the explosive growth taking place in
China, and who are able to handle the high risk to have the potential for high
returns, there are plenty of Chinese stocks that now trade in the US, and a host
of Exchange Traded Funds (ETFs) linked to different indices are now available.
For investors who want someone to manage their exposure, many mutual funds
invest broadly in China and greater Asia.Currency
For investors who
don’t want equity or commodity exposure, consider investing in the yuan. While
just a few months ago it was virtually impossible for individual investors to
own the Chinese currency, the launch of some currency ETFs linked to the yuan
has made owning the currency much easier.
Many analysts believe China
will be the US of the 21st century. If that happens, it could prove to be a
worthwhile investment destination. Do some research or speak with your financial
professional to see what type of exposure best fits your
Aaron Katsman, a licensed
financial adviser in Israel and the United States, helps people with US