Invest In China Without Investing In China
Over the past few years, the world has become obsessed with China and its growth
. Just recently China has overtaken Japan as the second largest economy in the world and it won't be long until it trails closely behind the United States. Over the last few years alone we've literally seen cities like Shanghai and Beijing go from "rags to riches". More millionaires are created each day then any other country in the world, and it seems that everyone is cashing in on the China dream. There's just one problem though. It's virtually impossible to invest in China unless you're Chinese or you have the connections needed to get you in on the wealth.
Unlike most countries, China restricts foreign nationals from investing directly into the stock market. For example, only the Chinese are able to invest in the Shanghai A Share market which means that unless you are a Chinese national, you're not allowed in on the action. The only way to go about this is to trust a Chinese friend or family member to invest for you in their name (NOT advised for obvious reasons). Another way to invest in China is to convert your money to RMB and take advantage of the capital appreciation the yuan is predicted to experience over the next few years, but with an annual limit of $50,000 per year and a very complicated process to convert RMB back to a foreign currency, this too is highly advised against. You can invest in the property market, but unless you got in five years ago, you missed that opportunity. Besides, the profit margins aren't as attractive as they used to be and according to the China Business News, experts are predicting a 20-30 percent decline in the second half of this year. Another way to invest in China is start a company, but unless you are willing to go through the most complicated process ever imaginable, forget it! It's costs thousands of dollars, a tremendous amount of energy and time, and unless you have the connections to get you through the start of phase of your business, the odds are seriously stacked against you.
So how do you invest in China? How do you take advantage of the most cash rich economy in the world without jumping through a million and one hoops just to make a dollar? The answer to this question is simple. Invest in China without investing in China. First, forget about the property market, forget about starting a local business, and forget about the local Shanghai A Share market for reasons mentioned above. I'm going to show you a very simple and easy way to get your money in to the markets, make a tremendous profit, and get your money back as easy as you got it in.
Remember, investing is supposed to be an easy, efficient and comfortable process. It doesn't have to be complicated nor should it be. The most important factor you need to take into consideration when investing in China or any developing country for that matter is SAFETY! Now don't get me wrong, China is a wonderful place to live and it presents itself with more opportunities then most countries have to offer today. If you know what you're doing and you have the right people on your team, you can accomplish big things. I've lived in Shanghai myself for six years now and have a great team working for me who have helped get my business to where it needs to be today. But this is only one way I have invested in China.
From January 2006 - October 2007, the Shanghai A Share market rallied nearly 500%. Everybody was making money during that time period including the taxi drivers and Ayi's (Chinese maids) who were lining up at the bank to put their entire life savings into the markets. As a financial services company we knew it was not sustainable and strongly advised our clients to NOT get caught up in the hype. However, at the same time, we needed to come up with a way to get them in on the action without taking on the local risks involved. So, we turned to international stock exchanges such as the Hang Seng and began investing our clients' cash into funds that held Chinese companies that were sure to see tremendous growth during that time period. For example, HSBC's China Equity Fund was a big part of our portfolio during those two years and our client's experienced an 82.8% return in 06' and further 55.4% in 07'. The cumulative return over those two years was a staggering 138.2% and the best part about this was that their money was safely invested through the Hang Seng market in Hong Kong. Our client's were able to and continue to be able to take advantage of China's growth by investing in funds through international markets that hold the same exact companies that the Chinese are investing into locally.
But mutual funds aren't the only way to invest in China without actually investing in China. Purchasing stocks directly in one particular company is another way to invest in Chinese companies that are predicted to yield phenomenal returns over the next couple of years. Savvy investors willing to take on the risk of investing directly into Chinese stocks can do so by investing via American Depository Receipts (ADR's). An ADR represents ownership of shares in a foreign company, but it can be bought and sold just like any U.S. stock, allowing investors to diversify their portfolios with foreign assets, but skip the hassle of a foreign brokerage account. For example, a couple of years ago, I saw the direction the telecom industry in China was headed. With only two companies, China Mobile and China Telecom, I put two and two together and figured that when 1.6 billion people are forced to chose between just two companies that there was no other direction these companies could go but up. So I did my research and concluded that between the two, China Mobile (CHL) was going to be my telecom play. But I couldn't invest directly in China Mobile via the Shanghai A share market so I looked up the ADR on the NYSE and purchased it that way. Over the same time period between 2006 - 2007, the stock price went from $25 per share to just over $100 per share. The cumulative return: 303.03%.
Now, returns like the ones mentioned above are obviously not sustainable and I would never suggest otherwise, but the point is that when the markets rally locally here in China, there are plenty of safe and reliable ways to take advantage of the growth and cash in on the opportunities presented. China Mobile and HSBC's Chinese Equity Fund are only two examples of how to invest in China without investing in China, but there are hundreds of funds and companies that you would be able to invest in using the same approach. ADR's and mutual funds listed on reputable and established stock exchanges mentioned above are great ways to capitalize on the growth China is expected to experience over the many years to come.
Invest In China Without Investing In China
By: Matthew Clark
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