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Buy China Stocks Instead of ETF's on the Stock Market Dips

Stock-Markets / China Stocks Apr 23, 2008 - 03:24 AM GMT

By: Money_and_Markets

Stock-Markets

Tony Sagami writes: When it comes to China, the media has been focused on the riots in Tibet and the protests following the Olympic torch around the globe.

For emerging market investors, getting swept away by newspaper headlines is a huge, not to mention costly, mistake.


To be sure, China has some major political and social obstacles to navigate going forward. The situation in Tibet is not pretty, and the Olympic Games are fast becoming a PR nightmare for Beijing.

But don't let yourself be distracted from the underlying economic picture, which continues to be stellar.

As evidenced by the latest economic news ...

China's Economy Is on Fire!

The final Chinese GDP numbers for 2007 were released last week. They were revised upward from 11.5% to 11.9%. That is the fastest growth rate in 13 years, which means the Chinese economy is picking up steam ... not slowing down!

What's driving those red-hot GDP numbers? Consider the following ...

Auto sales have exploded across China, with over 500,000 people driving new cars off the showroom floor each month.
Auto sales have exploded across China, with over 500,000 people driving new cars off the showroom floor each month.

Arrow Retail sales jumped by 20.2% in the first two months of this year, highlighting a 33.8% increase in auto sales. An interesting fact: Over half a million new autos are hitting the streets in China every month!

Arrow The lifeblood of a growing economy, foreign investment, continues to gush into China. Foreign Direct Investment (FDI) jumped by an amazing 61.3% to $27.4 billion in the first quarter of this year. Hong Kong, the British Virgin Islands (offshore money), and Singapore were the top three sources of new foreign funds.

Arrow Anybody worried about the slowing U.S. economy affecting Chinese imports is dead wrong. The Chinese trade surplus expanded by $41 billion in the first quarter, an impressive 40% increase over the previous year.

Arrow The World Bank reported that China is now the world's second-largest economy as measured by purchasing power. The U.S. is in first place, with Germany in third. Now you know why U.S. companies are racing to get their piece of China's economic pie.

Arrow The Chinese war chest of cash keeps getting bigger. Net foreign reserves increased by $61.6 billion in January, $57.3 billion in February, and $35 billion in March to total $153.9 billion for the year.

Arrow Remember when people used to talk about Fidelity Magellan moving the market with its $100-plus billion in assets? The Chinese national pension fund said it expects to double in size to over $143 billion by the end of 2010. The people running the fund know what they're doing, too; it earned a 43.2% return in 2007.

And all that gushing good news was just released in the last week!

In stark contrast to China, what kind of economic news did you hear out of the U.S. last week? Well, let's see now ...

Consumer confidence fell to a 26-year low ...

Foreclosures were up 57% in March ...

Oil burst through $115 a barrel ...

Initial jobless claims surged to a post-Hurricane Katrina high ...

And Citigroup posted a $5.1 billion first-quarter loss and announced 13,200 layoffs.

You see, unlike the U.S. economy which is rolling over into a recession, the Chinese economy continues to grow at a double-digit pace. So, unhitch your wagon from the nag and saddle up to the fastest thoroughbred.

Oh, and just remember ...

Buying China on the Dips Has Been An Extremely Profitable Strategy

As civil unrest and political turmoil in China have dominated headlines around the globe, the Shanghai Composite has fallen 49% from its October peak. The 34% drop in the first quarter was the worst ever in China's history and last week's 11% decline is the worst in over a decade.

Would it surprise you to learn that these types of drops aren't uncommon in China? The Shanghai Index lost 55% from June 2001 and July 2005, years in which the Chinese economy grew by an average of 9.5% a year.

Buying the dips in China has proven to be a highly lucrative strategy among wealthy investors.
Buying the dips in China has proven to be a highly lucrative strategy among wealthy investors.

As you can see, investing in China can be a roller coaster ride, but buying on these dips has been ... and will likely continue to be ... an extremely profitable strategy. After all, anybody who was smart enough to buy after that last 55% plunge saw the Shanghai Composite rocket higher by more than 600% in two short years!

Yeah, that's right ... the smart money pocketed a 600% return!

Today isn't any different. Unlike the dot-com pieces of junk that didn't make money or even have viable business plans, the Chinese companies that are now on sale are part of the foundational building blocks of the Chinese economy — construction, retail, energy, finance, health care, food, and transportation firms.

We're talking about real companies with real profits. And you now have the opportunity to buy their stocks at a 50% discount!

Is today the absolute bottom? I can't say for sure, but I think you'll be very happy with the results a year or two down the road if you take the plunge now.

My Suggestion: Invest Alongside Chinese Entrepreneurs

I still like individual stocks better than Exchange Traded Funds (ETFs) or mutual funds. Why? ETFs and mutual funds are typically packed with State Owned Enterprises, companies run by Communist Party members for the benefit of the Communist Party, and not the shareholders like you and me.

Meanwhile, you can invest right alongside the Chinese entrepreneurs that are working their butts off to grow their businesses. They get rich only if you get rich, too. I like that deal!

I'm talking about entrepreneurs like Michael Yu, a former professor at Beijing University whose company has taught English to 4.5 million Chinese students. Or Neil Shen, a Yale-educated former head of Deutsche Bank who co-founded the largest travel company in China.

But remember, no matter what you do, don't let headlines designed to sell newspapers dissuade you from taking advantage of the great investment opportunities in China!

Best wishes,

Tony

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

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