China investment strategy has become controversial. Some successful short sellers have been promoting the 'China is a bubble' thesis. We think they are wrong. We think that China, like all significant economies, has very significant pluses and very significant minuses. However, we believe that we are at the point in the evolution of the Chinese economy and nation that the pluses will vastly outweigh the minuses over the next 30 years.
We would definitely like to be exposed to investments benefitting from China growth over the long term. The Chinese stock market is growing quickly, but it is still very thin and therefore very volatile compared to our U.S. stock market. The possibility of corrections is not only real but high. However, timing when to get in and when to get out is a loser’s game for all but the most astute traders. What’s an investor to do? The Chinese market has more than doubled from the bottom in 2008. Should investors still put new money to work in buying stocks of Chinese companies?
From our vantage point there are three ways to invest in China today.
1. Buy stocks in China when the Chinese market undergoes corrections.
2. Invest in China through long/short investment funds.
3. Buy global large capitalization stocks that benefit from Chinese growth.
The best stocks to buy in the U.S. that expose themselves to Chinese economic growth are all in cyclical categories. These companies span from the capital goods and energy and commodities sectors to consumer cyclical companies and technology. However, the wind at the back of these companies that has come from exports and off shore activities is now being joined by the cyclical recovery in the United States. This creates a hedge against potholes and hiccups in China fundamental demand, while taking advantage of the long term growth in
