— by George Leong, B. Comm.
I write the “China Investment Letter” newsletter and I can tell you that there are incredible opportunities for buying growth in Chinese stocks listed on U.S. exchanges.
There is increasing evidence that the world’s top growth market will turn this year, and this is important for the global markets. The Chinese benchmark Shanghai Composite Index (SCI) is up an impressive 38% as of April 10, compared to the U.S., where the S&P 500 is down five percent and the NASDAQ is up 4.75%. Focusing solely on the U.S. and Canadian markets means lost opportunities to make some potentially massive trading gains.
The current buying of Chinese stocks has been driven by optimism towards China’s massive economic stimulus program, which, unlike the U.S., is easier to implement, as it does not require approval. Also consider that, unlike the massive debt and deficit in the U.S., China has close to $2.0 trillion in foreign exchange reserves. That is a lot of money and can be used to turn an economy around.
The rise in the SCI demonstrates my continued belief that China is the top growth region in the world. China is also a neighbor of the world’s second most populous country, India, where there are more excellent growth opportunities. Between the two countries, you have over 2.4 billion people or over a third of the world’s total population. Could you imagine the market, as disposable incomes in both countries accelerate upwards? That is why you need to be in China. China and India are trying hard to expand trade, which was $38.7 billion in 2007, but is expected to reach $60.0 billion by 2010 after a bilateral pact was signed.
Chinese stocks listed on U.S. exchanges are also rallying well off their lows while maintaining extremely attractive valuations. The key is patience and buying only small positions so as to not risk too much capital.
As many of you know, I have been a firm supporter of Chinese stocks, even during the difficult times in 2008, when selling capitulation towards Chinese stocks was extremely high. And I continue to believe that China will be the place for stellar growth going forward. U.S. companies have not abandoned China. In fact, we continue to see significant foreign investment in the country across many sectors.
China remains a key component of the global economic machine and will need to stabilize its economy; otherwise, the ripple effect to the rest of the world could be devastating. In March, the country’s exports fell 17% year-over-year. It was the fifth straight month of declines, but the decline was an improvement over the 25.7% decline in February. The Organization for Economic Cooperation and Development (OECD) recently slashed China’s GDP growth for 2009 to below 6.5%, while the World Bank is predicting growth of 6.5%. Yet there is optimism that the country’s GDP will rise by the fourth quarter. But, in spite of the downward revisions, the GDP growth remains impressive compared to the U.S. and other major world economies.
The bottom line is that you need to take a close look at China, where communism and capitalism co-exist to create a world economic power.