Investing in China – Ideas to Tap the Exploding Chinese Economy
Is Investing in China a Good Idea?
By, Soumyadipta Basu
You might think that with all of the tariff talk, investing in China is off the table. Not so, China is still a rapidly growing economy with more room for upward expansion.
Today China boasts 1.4 billion people. That’s equivalent to 18.5% of the world’s 7.6 billion people. From an agrarian predominantly population, in 2016 55% of the Chinese people lived in cities.
China’s urbanization is what has led to the country’s impressive economic growth over the past few decades. And China continues to urbanize.
It’s taken three decades for China’s population to be more urban than rural, and it’s expected that China has another 20 years or more of urbanization ahead of it. With urbanization will come continuing economic growth an investment opportunities. There are immense pros of globalization for investors.
In 2017, China GDP growth was 6.9%, up from 6.7% in 2016. Although not the 10+% average growth of the 2005 to 2010 years, the current expansion is still quite better than the recent 4% GDP U.S. growth.
Consider the population of China as similar to that of the U.S. before the industrial revolution (without democracy).
There are rumblings that economic growth in the 21st century will belong to China, just as the 20th century belonged to the United States. That growth will create trillions of dollars in economic output in the coming years, so investors are wise to consider the investment opportunities in China.
Tariffs – Investing In China Risks and Rewards
The U.S. recently imposed tariffs on many of our trading partners, including China. And, China has retaliated with additional tariffs on U.S. goods. The full economic impact of the tariffs isn’t fully integrated into the economy yet, although it’s likely to put a damper on some Chinese companies.
On a positive note, China has publicly claimed not to allow the trade conflict to derail the country’s growth of employment.
Beijing – Reuters recently reported that “China will keep its economic growth within a reasonable range and achieve this year’s target despite challenges,” according to the state-run Xinhua news agency. This is despite the trade war with the United States. China’s recent 6.9% growth remains above the 6.5% state growth target.
Additionally, there are other risks and rewards for investors in China. China is still a communist country. So, despite all the free market principles that China has faithfully adopted, as a communist nation the rules that govern a public company in China are different than in the U.S.
Chinese stocks trade on the Shanghai Stock Exchange and the Hong Kong Stock Exchange. Both of these exchanges have similar listing requirements to the U.S. stock exchanges. Companies must report timely financial statements, undertake audits and meet other requirements of size and capitalization. Foreigners can buy and sell shares issued by Chinese companies listed in Hong Kong but have more limited access to the mainland exchanges in Shanghai and Shenzen, where mainland-China-based companies are listed.
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Beyond that, the accounting rules differ, and that is where things can get murky when investing in Chinese companies. China is an exciting region with ample investment opportunities.
Investment in China Ideas
Investing in China ETFs
For investors that want to dip their toes into the Chinese investment waters, following are some China ETFs funds to investigate:
- iShares China Large-Cap (NYSEMKT:FXI)
- iShares MSCI China (NYYSEMKT: MCHI)
- iShares MSCI Hong Kong (NYSEMKT: EWH)
- SPDR S&P China (NYSEMKT: GXC)
Investing in China Stocks
For the stock picker, here are several individual China stocks to research.
As China’s No. 1 search engine, Baidu Inc (NASDAQ:BIDU) is often nicknamed the ‘Google of China.’ Like Google, Baidu’s business interests span much more than just search. Baidu’s business covers the cloud, AI, maps, IT security and self-driving technology. Recently Baidu has announced a new partnership with Ford Motor (NYSE:F) to develop smarter cars for the Chinese market. And from a Street perspective, Baidu certainly gets the thumbs up. The stock has 100% support from top analysts specifically and a $306 price target (26% upside potential). According to experts, BIDU is in prime place to benefit from the secular growth of China’s online ad market.
Chinese e-commerce giant Alibaba Group Holding (NYSE:BABA) is an investor favorite. Similar to Amazon, BABA is an online and mobile eCommerce company. The four divisions cover commerce, cloud computing, digital media and entertainment, and innovation. Another market darling, BABA is currently priced at $177, on August 13, 2018, with a $237 one year price target.
China isn’t just about tech stocks. One of the country’s largest biopharmas is an analyst ‘Strong Buy’ stock idea right now. BeiGene Ltd (ADR) (NASDAQ:BGNE) is making a name for itself with cutting-edge cancer treatments. Primarily these treatments, known as BTK inhibitors, can shrink or eliminate some B cell tumors by disrupting the BCR pathway. BeiGene remains on track to file two NDAs [new drug applications] this year and the data continues to be highly encouraging for the BTK inhibitor. Should the new developments emerge, the stock price might benefit.
Weibo Corp (NASDAQ:WB) is China’s most popular multimedia micro-blogging website. The fast-growing site already boasts over 374 million monthly active users. Having established itself as a unique and sustainable social network, WB is expected to have long-term growth in number of users and better monetization. Weibo is like Twitter but with Instagram-like features. Unlike Twitter, Weibo is much more interactive with a heavy emphasis on video, photo, and live-streaming content. It is also the partner of major TV networks and users can shop online using the BABA-backed ‘Weibo Payment’.Also note that Alibaba and another Chinese company called Sina Corp are both big stakeholders in the stock. Another fast grower, the $76 dollar firm is expected to explode to $127 by this time next year.
Tencent Holdings Ltd (OTCMKTS:TCEHY) is a true stock legend. The tech giant is the first Chinese company to be valued at over $500 billion. This puts it in the same league as major U.S. stocks like Facebook. And according to the Wall Street Journal, TCEHY “isn’t yet a household name in the U.S., but it should be.” The company is widely diversified from hugely successful gaming to music and videos. But the Tencent jewel is WeChat, the popular Chinese messaging app with almost 1 billion users. Think of a juiced-up version of WhatsApp that includes payment systems, smart city offerings such as the ability to schedule appointments, pay traffic fines or make visa applications.
Don’t let tariffs and market volatility scare you off of investing in China. Just remember to do your research and due diligence before investing. And don’t forget that sector investing is risky as markets can turn on a dime.