Saturday, January 29, 2022

How to invest money in China


Zubair Yaqoob
The author has diversified experience in investigative journalism. He is Chief content editor at

At six percent of the economy of China between early July and late September has grown. That sounds like a mature performance, but a disappointment for China. You have to go back almost 30 years to find a quarter in which the economy has developed similarly slowly.

Since it sounds crazy, just in such times to invest the money in China. Especially since one reason for the weaker performance of the Chinese has to do with the conflict, which has been holding the world in suspense for some time now: the trade dispute between China and the United States. Although America’s President Donald Trump used to declare a rapprochement in the dispute, the more modest part of humanity knows only too well, the situation is far from over.

The fact that some fund companies nevertheless stir the drum for China makes it suspicious. For the sake of good business, companies must always look for new trends that can make their customers happy. On the other hand, the fact that they are trying these days with the difficult topic of “China” also shows that this is more than mere marketing talk, but serious consideration.

Long-term economic dynamism of China

Otherwise, it would not be possible to explain why a major investor such as Singapore’s Temasek state fund,whcih has portfolio of US $313 billion, invests a good quarter of its money in China. “The tensions between China and United States will continue for a while, but we are convinced of the long-term economic dynamism of China”, said Tan Chong Lee, Joint head of Temasek portfolio management group.

To start with the basics, China is the second largest economy in the world after the United States in terms of economic output.

However, in key equity barometers such as the MSCI All Country World, Chinese companies only account for less than four percent. Franklin Templeton, a global leader in asset management comes to a similar conclusion in an analysis of the largest mixed funds in the world, investing in both equities and bonds.

China under weighted in most portfolios

Only six percent of their money is currently in emerging markets, which includes China in the terminology of financial markets. The China quota of funds makes up only a small proportion of these six percent. Templeton’s exchange-traded fund sales specialist, Marcus Weyerer concludes: “Measured by the size of its economy, China is underweight in most portfolios. Investors will miss the opportunity to participate in the country’s growth”.

Now one could interpret the shyness of the investors as well as wise restraint out of fear of the trade conflict. But interestingly enough, this conflict gives rise to opportunities. The first is that the Chinese now rely more on products from their own country than before. It is even the stated goal of the Chinese government to reduce dependence on foreign countries and to strengthen domestic consumption.

Chinese now rely more on products from their own country than before

This could also boost the share price of some Chinese companies, although not a few of them suffer from high debts. But consumers even have the leeway to increase their own spending. Because the Chinese save more than other people, on average they spend 45 percent of their income. As soon as they decide to spend only a little more, this stimulates China’s economy.

A second chance resulting from the trade dispute has to do with Chinese technology companies. The smartphone maker Huawei, suffers while under the US sanctions. But at the same time, this could trigger a new development spurt in China. In any case, China’s best-known Internet companies Alibaba and Tencent in the face of their stock market value DAX companies in the shade.

Easy way for foreign investors

The easiest way for foreign investors is to pump in their money in China through funds. Here it is important to distinguish: Many new index funds (ETFs), which simulate the performance of Chinese equities, incorporate so-called A shares on a larger scale. These are often shares of the Shanghai Stock Exchange, formerly reserved only for Chinese, they are suitable for bolder investors.

Franklin Templeton has just launched such an ETF with the “Franklin FTSE China” (ISIN: IE00BHZRR147). Fewer Shares have the “Lyxor MSCI China” (ISIN: LU1841731745). Increasingly relies on companies that are listed on the Hong Kong Stock Exchange. If investors prefer to trust classic fund managers, they can invest in “HSBC Chinese Equity” (ISIN: LU0039217434), but the fees are a bit higher.

Anyone venturing into China must know that high price fluctuations and state intervention in the stock market are commonplace. Long breath, however, has been rewarded in the past. Calculated in dollars, the most important Chinese stocks have nearly quintupled since 2004.

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