Why You Should Think About Exposure to China
Monday, January 30th, 2006
By George Leong, B.Comm. for Profit Confidential
Since opening up its economic system to capitalism about a decade ago, China has turned into one of the world’s most dominant and important economic powers. Unlike the United States or Europe, China has a significant competitive advantage — an extremely cheap labor force and a population in the hundreds of millions. China’s 1.3 billion people makes it easy to understand why labor is so accessible and so cheap.
With GDP growth at nearly 10% in 2005, the country’s economic reform has paid massive dividends that I’m sure have caught even the Chinese bureaucrats by surprise. The world is watching closely, feeling the emerging power of China.
China’s GDP is the world’s second largest, behind only that of the United States, at $8.158 trillion and $12.37 trillion, respectively in 2005. Equally impressive is that China has grown in such a short time, compared to the rest of the industrial world. China’s GDP is also now more than twice that of Japan.
Membership on the World Trade Council was a milestone for a country that is striving to join the world economic elite.
Now, make no mistake about it — China is for real. Just the size of the burgeoning middle class in the country alone is almost overwhelming, but very alluring to companies wanting to tap the consumer spending growth in the country.
When you have a real consumer market of several hundred million people, you can’t help but want a piece of the action.
The trend is positive. You should think about some exposure to the country. Personally, I prefer the Hang Seng exchange to the Shanghai stock exchange. To me, the Shanghai exchange’s weak governance is a drawback. An alternative is American Depository Receipts (ADRs) trading in the United States.
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Tags: china, China's GDP, GDP growth
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
