China has been the land of investment opportunity for decades with many investments in China doing very well. The benefits of investing in China came from its emergence as a developing economy, huge population and consumer base, and cheap workforce which attracted lots of foreign direct investment. Over the years Chinaâ€™s stock market matured, offering investment opportunities for average investors and many Chinese companies became listed in the USA as ADRs (American Depositary Receipts). Likewise, many mutual funds provided reasonably safe investment options by including Chinese stocks in their portfolios. There has always been risk associated with investments in China as they are believed to fudge their numbers from time to time but the situation may be more worrisome today as Chinaâ€™s debt increases, its economy levels off, and a trade war with its largest customer (the USA) threatens to become permanent. Are there safe investments in China today considering all of this, plus the likelihood that Chinese tech companies have become suspect of being pawns in the service of Chinese cyber warfare?
Investments in China
For the average investor, the best ways to invest in China are through a mutual fund or other stock fund that holds Chinese assets or by purchasing ADRs. You donâ€™t need to speak Mandarin or deal with a foreign stock market and can let someone with the time and expertise pick the individual stocks. But, if you want to pick and choose the right individual stocks, you can buy ADRs of large Chinese companies who provide financial reports on a par with what US companies provide when they are listed on the US stock exchanges. In regard to our concern about safe investments in China, here is where our focus is. Investor Place looks at 3 Chinese stocks which they say you should buy and hold. Their article not only offers three stocks that may be safe investments with high returns over the years and therefore safe investments for retirement. They also give us some insight into the current state of the Chinese economy what the future holds for investing in China.
To say that Chinese stocks have been a roller coaster over the last year would be an understatement. Already, China has seen slower growth as it shifted from being a solely manufacturing-based economy to one based on services/consumerism. But with the trade war, Chinese stocks have been hit even harder, only to bounce back as a deal with the United States seemed to be within grasp.
Then, President Trump tweeted. With no deal in sight, tariffs rising and even lower growth on the horizon, Chinese stocks have continued to sink over the last week or so.
But this could be an interesting opportunity for long-term investors. China continues to dominate on the world stage and is arguably one of the most important economies. And while a deal may not be in sight today, thereâ€™s a good chance that one will be ironed out eventually. Meanwhile, with its huge and growing consumer base, domestic growth continues despite various trade pressures. In the end, Chinese stocks could be a wonderful long-term play. And the recent hiccups have provided a â€œresetâ€� in valuations ripe for the picking.
At this point, we are looking for safe investments in China and investments with high return. As Chinaâ€™s foreign sales level off or are rolled back due to trade war and cybersecurity issues, they have a huge internal market to develop and that may well be where to invest in China. And, in that regard, the first Investor Place choice fits right in.
Investing in Alibaba
Alibaba is generally thought of as the Chinese Amazon.com. They serve as a marketplace for selling products online but do not hold any inventory. As such, they may be more similar to eBay. Either way, Alibaba is a huge and growing company in the huge and expanding Chinese market. And, like Google, Alibaba is not resting on its laurels but reinvesting its profits in a variety of other businesses such as social media, cloud computing, mobile devices, and peer-to-peer lending.
In our article, Is There a Safe Fifty-year Investment, we noted that companies like AT&T, General Motors, Coca Cola, Kodak, and others were uniquely positioned to provide products and services to the growing US economy over much of the twentieth century. Their level of success and even dominance did not last forever, but it lasted for a long, long time. This is a good way to look at Alibaba. They are positioned very well in a very large and growing market. Their wide range of virtually recession-resistant products and services protects them again be totally devastated by a prolonged or permanent trade war.
Are there safe investments in China today? Yes, and Alibaba seems to be one.
Investing in Baidu
Baidu is often referred to as the Chinese Google. They control 80% of internet searches in China. Like Google, they make billions of dollars a year on selling ads. And, like Alphabet, Googleâ€™s parent company, Baidu has diversified into other tech areas such as autonomous vehicles, artificial intelligence, and video with its iQiyi subsidiary. Baiduâ€™s growth is based on still-expanding use of the internet in China and not on exports to saturated and increasingly trade-protected North American and European markets.
Are there safe investments in China? Baidu is one and will likely be for a long time.
Investing in Ctrip.com
This is not a big company but rather a normal company that is well-positioned in a growing niche market. They run accommodation and travel booking sites. Airlines, hotels, cruises, and others use Ctrip.com to list their unsold services. This is an extremely low-overhead business in a growing market. As China shifts to a consumer-driven economy and focuses more on internal growth, this company has the potential to keep expanding the Chinese travel more and more. The risk of investing long term in these folks, like the rest, is that this is a business that competitors can mimic and take market share.
Safe Investments for Beginners in Chinese Stocks
Beginners at investing should typically stick with investments that they know and investment vehicles that protect them against undue risk. In regard to risks of investing in China, ADRâ€™s of companies doing business solely in China, like Alibaba, Baidu, and Ctrip.com are a good idea. At this point, we prefer the few stocks mentioned because of their Chinese consumer focus. Our concern about Chinese tech companies and exporters is that the trade war with the US is not going to end soon and may spread to involve other nations. China has grown fast and is getting to a point where it wants to display regional and global dominance. This will meet resistance across the globe and make much of Chinaâ€™s export-driven growth slow even more.
Chinese Debt and Investment Safety in China
Much has been made of Chinaâ€™s increasing debt at a time when their economy is cooling off. Comparisons to Japan thirty years ago are appropriate and China seems to be concerned about following the same path into economic stagnation. There has been money flowing out of China for years is wealth investors there have been hedging their bets. Chinese banks and exporters in heavy industry are at substantial risk of a hard landing due to a debt collapse and loss of external markets. However, China has $3.25 trillion dollars in cash reserves which will provide a cushion if needed. It should be noted, however, that they had nearly $4 trillion in reserves just four years ago.
To sum up, there are safe investments in China, safe investments for seniors and safe investments for beginners. The first trick will be to invest in companies you can track. This means investing via ADRs. And, the second is to pick companies with a strong consumer focus in the still-expanding Chinese economy.