Invest In China: Profit From the World’s Fastest-Growing Economy
by Alexander Green, Chairman, Investment U; Investment Director, The Oxford Club
Friday, July 20, 2007: Issue #694
Last week I visited one of the most charming places in the country, the Chautauqua Institution in southwestern New York.
Founded in 1874 as the world’s preeminent expression of lifelong learning, the Institution currently offers summer classes in art, music, dance, theater, writing and a wide variety of special interests.
However, I wasn’t visiting this 700-acre lakeside retreat to practice my brush strokes or my pirouette. I was there because Chautauqua was offering a week of lectures entitled “The Meteoric Rise of India and China.”
I’ve written about this topic many times in the past. And I’ll be returning to it often in the future, as well.
Why? Because while both countries are experiencing startling change right now, the rise of China, in particular, as a global economic and political power is perhaps the transformative event of our time.
China: An Unprecedented Investment Opportunity
China has been the world’s fastest-growing economy for almost three decades, expanding at an average pace of 10% a year. Sure, other developing nations have experienced heady growth as well. But nothing compares to what’s happening in China.
For example, in 2005 real per capita output in China was nine times that of 1978, when free market reforms were first instituted. Real per capita output in Latin America increased only 10% over the same period.
China’s current pace of urbanization is unparalleled in history. Its urban population has ballooned by an astounding 200 million over the past decade. (That’s equal to two-thirds of the entire population in the United States.) This has led to unprecedented increases in demand for housing, transportation, utility services and other infrastructure.
The world’s fastest-growing economy is driven by rising consumer demand, as well. China’s citizens now thirst for everything we already take for granted in the West: automobiles, computers, cell phones, dishwashers, microwaves, insurance, mutual funds, mortgages, credit cards and so on.
To say this growth is creating investment opportunity is like saying the water runs a little swift just above Niagara Falls.
At the Agora Wealth Symposium in Vancouver last year, I gave a lecture about China entitled “The Greatest Investment Opportunity the World Has Ever Known.” Since then, the Shanghai Stock Exchange is up 145%.
(Not long after the conference, James Boxley Cooke appropriated my speech title when he introduced Horacio Márquez’s fast-paced trading service “The New China Trader,” a service I heartily endorse.)
China has grown so quickly, it is already home to the world’s fourth-largest industrial base, behind only the U.S., Germany and Japan. Fortune 500 companies like General Electric, Motorola, Microsoft, General Motors and others are plowing billions into China right now.
Yet most investors I speak with have virtually nothing invested there. (Many of them may eventually feel like comedian Dennis Miller when he said, “I was at the airport when my ship came in.”)
The Best Way To Start Investing In China
In our Oxford Investment Portfolio right now, we have nearly two dozen China plays. Some of them are companies headquartered in Hong Kong, Mainland China or Taiwan. Others are Western companies that are either selling to China, outsourcing to China, or being supplied by China.
And our Oxford All-Star Portfolio recommends a closed-end fund run by the world’s top-performing emerging markets manager. (It’s already more than tripled, in addition to paying annual dividends and capital gains.)
If you’re looking to take a first step into China, you could do worse than to pick up a few of the iShares FTSE/Xinhau China 25 Index Fund (NYSE: FXI).
This exchange-traded fund (ETF) holds 25 of China’s leading publicly traded companies. It’s liquid. It has low expenses. And it’s tax-efficient.
It’s not likely to perform as well as some of our individual China recommendations. (Aluminum Corp. of China, for example, is up 136% since we began buying seven months ago.) But if you’re only just getting around to sticking a toe in, this ETF is a good place to start.
Good Investing,
Alex
Editor’s Note: To get Alex’s current growth stock recommendations, here’s a special invitation to join The Oxford Club as an Investment U subscriber. Learn more.
Today’s Investment U Crib Sheet
On this date last year, the Shanghai Composite Index closed at 1,655. Last night, the index hit a record high of 4,058 – a one-year, 145% increase. And there are no signs of coolingIn fact, Morgan Stanley just upgraded its economic growth forecast in the country, from 10.5% to 11.3%, according to Forbes. The firm cited strong second-quarter data and likely government policy action to reduce any risk of the economy overheating.
The iShares FTSE/Xinhau China 25 Index Fund is up 27% in the last three months.
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