Most business people around the world are not surprised by China’s incredible economic growth. There are many investors who may have missed the opportunity to really profit from it. These investors believed they did not know enough to develop a successful investing program in China. Martin Lau is a China stock fund manager at First State Stewart. Many investors adknowledge his steady approach. He recently explained to the media about some of the popular myths concerning investing in China.
Myth 1: Investing In China Is Only Possible With Stocks Listed On The Chinese Exchanges Or Companies From China
Martin Lau believes those who have benefited the most from China’s economic growth have not been limited to just Chinese companies or China-listed stocks. Lau’s team invests heavily in stocks listed in Hong Kong. They also invest in companies domiciled in Taiwan, Australia, United States, Japan and more. He believes others may benefit from China’s successful growth. Many of China’s largest companies are listed in Hong Kong.Recommendation
It doesn’t matter where an investor is located. They can benefit from China’s growing economic power.
Myth 2: Exchange-Traded Funds Or China’s Index Funds Have Performed According To The Chinese Economy.
It is common for an investor to make index funds their initial choice when beginning to invest in an unfamiliar country. This is often done for tactical or strategic allocation purposes. It is also done to achieve broad diversification of a targeted market. This is not always the best way to approach things in China. During the past two decades, China has been economically impressive. The MSCI in China has not been good. Foreign and private sector investments have been major players in the Chinese economic growth. MSCO consists of more than 90 percent of companies that are owned by the state. China is responsible for about 50 percent of the market cap.Recommendation
Investigate all options for investing in China. Default choices are not just exchange-traded funds (ETFs) and Index funds.Myth 3: It’s Important To Understand Chinese Politics To Succeed At Picking Investments In China.
Investors agree that politics is part of doing business in China. If an investor is bottom up, politics may not have as much importance as is perceived. According to Lau, those who invest in consumer companies realize the influence of the government is actually quite small. He does believe politics is essential for regulated industries like oil, telecom, and others. Those who are creating an investment strategy should realize the current Chinese administration’s belief about economic reforms could have major implications. Lau thinks the Chinese government is less focused on short-term economic growth, and that is bad for the economy in the short term. He believes it could be very good for the Chinese economy in the long run.Recommendation
Understanding Chinese politics is a good thing. It is not critical for successful investing in China.
Myth 4: Investors Must Have Local Connections In China To Succeed At Investing
Connections can be so influential in China. It’s a word that is almost as well-known as “hello” in investing circles around the globe. Lau doesn’t use only information for his philosophy on investment. Traders are driven by information, and their focus is short term. Their turnover rate is high, and none of this is a good idea for an investor with long-term investment goals. China is a big country. The business in various parts of the country can be done quite differently. This is a struggle for international investors
trying to develop an information edge.Recommendation
It is possible to succeed at investing in China without connections. It’s important for an investor to know their market.
Myth 5: The Chinese Accounting Framework Is So Unique It Is Not Really Relevant For Investors.
Reading any financial statements is not pleasant. Being required to read Chinese financial statements may keep away interested investors. Lau believes the problem is with the accounting framework. Chinese accounting has been slowly meeting international standards during the past three decades. Lau believes investors should be careful and use common sense when reviewing Chinese financial statements. If things look too good, they probably aren’t what they seem.Recommendation
Reading Chinese financial statements should not prevent anyone from investing. Work on making sense of the numbers and how they match stories from management
Well in summary, investing in China is not something that is easy. It is also not as difficult as most investors think. What is your view on it?