Is China a Better Investment Destination Than U.S.?

Now that China has overtaken the U.S. as the world's biggest car market, investors should be asking themselves if China is simply a better place to put their money.

We've been cautioning readers against expecting any near-term returns in China under the current economic malaise. With unemployment at record highs, a 100-year drought crippling agriculture and exports at a mere trickle, China is not the place to be right now.

But looking out on the horizon, we wonder if China should be your primary investment destination for potential long-term returns.

Car data for January 2009 certainly suggests a strong bias toward China.

The China Association of Automobile Manufacturers said Tuesday that 735,000 vehicles were sold in China in January. That surpassed the 656,976 vehicles sold in the U.S. the same month.

While car sales slowed in China along with most other countries, U.S. sales plunged 37% in January to a 26-year low. Meanwhile, vehicle sales in China dropped 14.4% from a monthly record 860,000 in January 2008.

January sales were 0.8 percent below those in December, and below the 790,000 some analysts had anticipated.

Last week, Mike DiGiovanni, General Motors Corp.'s (GM) executive director of global market and industry analysis, forecast that China's car sales could hit 10.7 million vehicles in 2009, more than his estimate of 9.8 million unit sales in the U.S.

China is certainly a major market for GM but the company is also losing market there. In October 2008, Toyota (TM) beat out G.M.'s Chinese venture as the number-two auto maker in China for the first nine months of the year. VW/Audi holds the coveted top spot in China.

If you're interested in securing your financial future, you may want to contact your broker about ETFs and other funds based on Chinese equities.

Disclosure: no positions

Comments

[omooc:]

I read the same statistics in WSJ several days ago. Reading this article does not provide me with answers raised by the author serving as the title of this post. Another WSJ article a couple of days ago cited an interesting statistics: 48 of people polled felt that USA would be the the first country to come out of recession or whatever term one wishes to use. We'll wait and see.

Feb 13 09:21 PM

[HaavBline:]

The author dwelled on a few selected unfavorable news as basis to be cautious about China stocks. This is very UN-contrarian thinking to say the least. They failed to look at other factors that will let investors to EXPECT better time 6 months later.

As a result, they missed out on the best stock market performance in the world for the past 3 months, the Shanghai Stock market.

Very strange to base an investment decision on one month's worth of car sales. Yes, it is a significant milestone, but from an investment standpoint, it has no value in timing or fundamentals.

Few investors know American investors can actually participate in this market by buying the closed-end fund Morgan Stanley China A-Shares Fund (CAF), up some 30% in 3 months.

Feb 14 12:30 AM

[User 356929:]

China can invest the same monies in alternatives such as natural resources which they may badly need. Why buy a debt laden US dollar? For the return of an eventual and continued buildout of China, copper as well as safer hedges such as gold or Candian assets WILL be replacing US Treasury instruments. China has realized the futility of depending on a bankrupt America to drive it's future growth. Growing the economy from within will now be a greater part of their equation.

Feb 14 06:01 AM

[2140:]

Would you apply the same investment principles to investing in a country as you would a company?

If I chose to invest in China, these are some of the questions I would be asking.

1. What is your investment time frame, 6 months, 1 year or 5 years?

2. Will your investment be held in CNY or HKD/USD (assuming you buy H shares in HK?

3. Which industries do you want be in? Something which can be supported by China's own domestic consumption (tobacco), has good track record (not milk, medicine or toys), not tied to oil prices (eg, airlines too risky to predict), selling price of goods not controlled by govt. (eg. oil companies), has poster boy status and therefore enjoys certain priviledges (eg. telcos), cash rich and has yet to expand significantly globally (eg. telcos , banks), not at risk of natural disasters or disease (eg, insurance, mining, farming), will benefit from natural disasters (concrete, steel), not subject to protectionist restrictions (telcos, tobacco, toys), sound management (usually means that its shareholders are reliable, reputable and stable and still remain invested), high entry barrier (meaning not easily replicated / copied). Stock price has not already apprecited by more than 20% in last 2 months, no crazy management salaries bonuses and has independant directors on their board/shareholder nominated directors who have access to books,

Short notes on property in China, 60-77 year leases only for residential, 30-50 year leases for non-residential. no such thing as freehold. not easy to get loan for foreigner, can only sell to foreigner who has worked in China for a year, foreigners can only buy 1 unit. Prices for prime locations in Shanghai or Beijing still holding at about USD2800-3500 psm. capital gains tax if sold early. Restrictions on taking money back out.

What questions would you ask before investing in the US / a US company?

Feb 14 10:01 PM