The Chinese economy is growing at the fastest pace of any large country in the world today because it has become a manufacturing powerhouse. Recently, there has been considerable debate as to whether China or India will lead the emerging markets. My money is on China. Management guru Peter Drucker thinks China's state-owned factories are a major economic and social disaster in the making for today's investors. He likes India's prospects better and points to their highly educated population.
But, to my thinking, if education and high IQ were the keys to financial success, then Donald Trump's Apprentice program on NBC-TV would not have fired on its first show the man with the best education (MD MBA) and presumably highest IQ. The fact is, the man couldn't sell lemonaid. He also couldn't get the respect of his peers. So, let's not beat the education drum too much. The former USSR republics are much better educated people than are most countries, including India, and yet Russia has struggled because they never learned the old-fashioned American way of making money. China has done so and India is just now learning.
Now I see that Trump's Apprentice Season #3 is going to test the premise that "street smarts" are just as good as "book smarts". Funny that Trump attended Fordham University before transferring to the Wharton School of Finance at the University of Pennsylvania, graduating with a bachelor's degree in economics. Not to put too fine a point on it, but the last time I looked, at the University of Toronto, where my daughter graduates this year, half the 50,000 student population is Chinese, not Indian.
Maybe I am biased because I've been to China twice, and not to India. But I have experienced the dynamics in person and I am a believer in the long-term economic and investor prospects for China -- although there are substantial risks as Drucker and others point out. There's not a day that goes by without hearing of the Chinese economy. In 2002, China exported eight times as many goods as India and its gross domestic product grew twice as fast as India's 4.3% increase. Maybe that's the reason China got 12 times more foreign investment than India. In my view this situation will continue at least through the IOC Summer Olympic Games in 2008.
Yes, while the Chinese economy is growing at the fastest pace of any in the world today, for building an international portfolio, I would still only have about 3% of my holdings selected from Chinese stocks. I would have more, but the market risks are excessive.
Regardless of how fast the economy grows, and how alluring the stories promoted by Wall Street, you have to stick to sound investment principles. There are several stocks that trade in Shanghai and Hong Kong well worth considering in a portfolio. You can find these stocks (plus stocks from other countries in the Far East) easily if they are dually listed stocks on the NYSE:
· China UNICOM Limited [CHU]
· China Mobile (Hong Kong) Ltd. [CHL]
· APT Satellite Holdings Ltd. [ATS]
· CNOOC Limited [CEO]
· Asia Satellite Telecom Holdings [SAT]
· Petrochina Co., Ltd. [PTR]
· China Petroleum & Chemical Corp [SNP]
· Shanghai Petrochemical Company Ltd. [SHI]
· China Southern Airlines Corporation Ltd. [ZNH]
Here is a link to a list of the Hong Kong Exchange large cap issues:
There are also many excellent Chinese funds. The three highest S&P-rated funds for Greater China (the first two are 5-star), when last I looked about a year ago, are:
(1) Manulife GF China Value Fund, (1-year/3-year average returns = 83.3%/241.6%), Manulife Global Funds, 13/F Suite 5, 9 Queen's Road, Central, Hong Kong, - Tel : 852-2501-9100 Fax : 852-2810-9510
(2) Value Partners IF China B & H Fund, (1-year/3-year average returns = 79.5%/237.8%), Value Partners Ltd, 608 - 609 Bank of America Tower, 12 Harcourt Road, Central, Hong Kong, - Tel : 852-2880-9263 Fax : 852-2564-8487
(3) Fructilux Actions Chine Fund, (1-year/3-year average returns = 72.3%/198.3%), Natexis Private Banking Lux SA , 51 avenue J.F. Kennedy, -, Luxembourg, Luxembourg, Tel : +352 46 31 16 1 Fax : +352 463816-505
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