China celebrates its New Year and the year of the Dragon on January 23. For stock markets, the Dragon is strong and could give stocks a lift this year. According to the widely followed annual Feng Shui Index produced by CLSA Asia-Pacific Markets, predictions call for a slow first half for the Hang Seng Index in Hong Kong, but a pickup in the second half.
Yes, we all know about the fiasco with numerous Chinese reverse merger (CRM) stocks. Some companies are cheating and lying about their operations and are getting caught. The fear of reverse mergers has not only impacted CRMs, but has also sent a ripple throughout the vast majority of Chinese stocks. Yet the selling has been overdone and unjustified.
Many of you know that I have been a big supporter of Chinese stocks despite a down year so far in 2011. But take a look at the facts…
China will continue to be one of the top major growth regions in the world. China had about 1.341 billion people at the end of 2010, according to the National Bureau of Statistics.
And better yet, people are spending their yuans.
While consumers are hesitant and faced with high debt burdens in the United States, the new money in China is being spent on everything from housing to furnishing to vehicles and travel. The country is now the world’s largest buyer of luxury cars. The government’s mandate is to drive domestic consumption to push up growth.
The per capita disposable income in China was about $3,000 a year for urban residents as of January 20, 2011, according to the National Bureau of Statistics. For rural residents, it was a mere $925.00. The income has more than doubled over the past few years and wages are heading higher along with spending. At the present time, only a small fraction of China’s GDP is driven by consumer spending compared to about 70% in the U.S. China wants to drive consumer spending long-term and this will drive organic GDP growth.
In my view, no other country offers such incredible investment opportunities. Moreover, you can add in the fact that China is a neighbor of the world’s second most populous country, India, where there are also excellent growth opportunities, with over 1.1 billion people and great growth prospects. Imagine the combined markets when the disposable incomes in both countries rise upwards. The two countries are working on increasing their bilateral trade.
Overall, China is on the right path towards developing into a rising world economic power as well as a basin for incredible and sustained growth across many sectors, including industrial, mining, energy, services, and technology. The reality is that if it is saleable and in demand, then you know that China will likely have the consumer market for it. China knows that and so do many of the top multinational companies, including many in the United States.
At this point, I believe that there are good aggressive buying opportunities in Chinese stocks, specifically small-cap stocks. However, you should be cautious and take a look at buying value at the current price levels. Chinese stocks listed in the U.S. will continue to represent an excellent area for growth investors; yet, you also need to be careful and to be diversified in your portfolio, as there could be more downside risk.
An area that I believe is ripe for strong growth as the material wealth grows in China is the travel sector, which I recently discussed in The Super-hot Chinese Sector.