The Chinese President Hu Jintao, who will visit the US this week, said on Sunday that his country’s economy had grown 10.2 percent in the first quarter of this year – the strongest surge in three years. According to K. Bradsher in the New York Times of April 17: “Chinese officials have been very cautious about acknowledging double-digit growth, claiming unusually steady quarterly growth rates of 9.5 to 9.9 percent in eight quarters over the last three years”.
If these statistics are anywhere close to reality, why are so many newspaper and magazine articles currently focusing on the US-China trade deficit, the valuation of the Chinese currency versus the US dollar, the intellectual property rights, or the investments the Chinese are making in the US? Why are few, if any, talking about good investments in China?
My best guess is that for many it remains easier to look at China from the perspective of the US, rather than from inside China! Some ten years ago I had the privilege of attending an executive seminar at The China Europe International Business School (CEIBS) in Shanghai that focused on China from inside China. Many things that were said then remain valid today. It is virtually impossible to understand some of the internal challenges and management problems of accelerated development of a country the size of China without looking at China from within. It is difficult to comprehend the precarious balances that Chinese officials maintain or need to maintain to prevent disaster. Many who write about China could benefit from traveling to China, seeing China from the inside, before judging it from the outside.
If you cannot get to China, there is still a way to learn more about China by investing in Chinese companies. A review of some 30 Chinese stocks, all quoted in the USA, produced the following short list (in no particular order) -- all with excellent O’Neil rankings, including high ranking on earnings per share, good returns on equity, increasing institutional support etc-- as simplyfied in my article on Ten Rules for Investment ResultsNetease.com (NTES), a China-based internet company; China Life Insurance (LFC); Petro China Ltd (PTR) involved in exploration, production, transport and the refining market; Yanzhou Coal Mining (YZC) who operates in Shandong Province; China Mobile Hong Kong (CHL) who provides wireless, voice and data services in 31 provinces of mainland China; Actions Semiconductor (ACTS) who designs systems-on-a-chip for use in media players; and Vimicro Intenational Crop (VIMC), designer of mixed signals system-on-a-chip circuits used in multimedia consumer electronics. Several of these stocks are within 1 to 5% of their 52 week high; only VIMC and NTES are within 10% of their high.
An investment of $50,000 equally split between these seven companies (meaning same dollar amounts allocated to each holding) started in early January 2006 is year-to-date up 51%.
There is also the China Fund Inc. (CHN), a closed-ended management investment company based in Boston, Massachusetts. The fund primarily invests in the equity securities of companies with significant assets, investments, production activities, trading, or other business interests is China, or which derive a significant part of their revenue from China. It invests primarily in the information technology, financials, industrials, consumer discretionary, energy, utilities, consumer staples, materials, telecommunications, and healthcare sectors. Year-to-date CHN is up 37.4%.
At lower cost there is iShares FTSE/Xinhua China 25 Index (FXI). The Index consists of 25 of the largest and most liquid Chinese companies. The fund generally invests at least 90% of assets in securities of the Index, or in ADRs based on securities in the Index. Year-to-date the FXI is up 25.9%.
In sum, a tinkle of investments in Chinese companies can greatly help your overall portfolio performance, not to mention improve your understanding of Chinese companies and the significance of rapid Chinese economic growth.
A slideshow of images from one of my trips to China can be found at Flickr (Click on View as Slideshow).
FXI chart year-to-date compared to CHN and S&P500. Chart Source: Bigcharts.com
Source of Map: Maps-of-China.net. For other maps of China visit Maps-of-China.net
