Investing In China

By Royce Leon

Introduction

In 2001 Jim O' Neil made the acronym BRIC. What does BRIC stand for? BRIC actually stands for the emerging markets of Brazil, Russia, India and China. The theory of BRIC actually means that these countries would actually be the global leaders by the year 2050. One of the components of BRIC that has been a major discussion in both international business and in the global markets is China. Before China opened its frontiers to international investments it went through a cultural revolution initiated by the most famous Chairman in Chinese history, Mao Ze Dong. After Mao Ze Dong's death in 1976, China's party lead by Deng Xiaopeng started the economic reformation where China would open its borders to international investments and entrepeneurship. From that point, China had woken up the sleeping giant that would later dominate in today's markets.

Stocks

 Many people have been skeptical in investing China because of the risk and uncertainty of being an emerging market , but at the same time it does provide an opportunity to find growth in your investments. Investing in China is risky because there are so many companies that go public, but at the same time within a year go broke and disappear. One way to invest in China is to invest is the large cap companies that dominate in the Chinese market.

Oil

One of the sectors that investors can find many opportunities is in the oil and petroleum sector. Some of the major companies that dominate in this market is PetroChina (PTR), China Petroleum & Chemical Group (SNP), and CNOOC LTD. (CEO). These are the biggest companies ranging from 60 billion to 100 billion dollars in market cap. These companies don't primarily operate on just oil but also in natural gas and chemicals.

Telecom

Another sector that is worth looking for is in the Chinese telecom sector. Some statistics from Reuters.com state that China's largest mobile phone carrier China Mobile (CHL), as of January 2011 have approximately 589.3 million users on its network, and 22.6 million users of the 589.3 million users are 3G subscribers. The company itself holds a little over 50% of the cellphone market in China. Other companies of China mobile is China Telecom (CHA) , and China Unicom (CHU) which is still under the ownership of the Chinese government. As of 2011, there are approximately 800 million cellphone users and the number of cellphone users are continuing to grow.

Internet

In China, there are many internet websites are going public in the United States stock markets. One of the most mentioned internet company that went public on the stock markets was Baidu. Baidu (BIDU) is comparable to the United States counter part Google. Baidu is considered as the number 6 most used and visited website in the world; it is mostly used by users in China. Baidu is a government run entity and censors the material that goes on in the website. Google had been competing for the top search engine in China,but just recently Google had been blocked access by the Chinese government. Basically, Baidu is left running with little competition ahead of it. Currently, Baidu has over 60% exposure and control over all media searches in China. Other companies that have similar services and competing against Baidu are Sina (SINA), Sohu.com (SOHU), Youku.com (YOKU), Dang Dang (DANG). Sina created a Weibo which is a service similar to twitter and is rapidly getting many users to use this service. Youku.com is the Youtube comparable website and Dang Dang is considered the Amazon of China which also offers a Kindle type of device to read Ebooks. As you can see, these major companies like Sohu, Baidu, Youku are all similar to the websites that we use today such as Google, Youtube, Amazon, and Yahoo.

Mutual Funds and ETFS

When you are investing in a single stock, it is quite risky because you are investing in one single company and if that one company goes bankrupt you would lose all your investment. Investing in a one single company can be quite risky especially when you are investing part of your nest egg into the stock. There are options that are alternatives to stocks. There has been mutual funds that actually stomach the risk for you, but you are paying managers that will work with your money along with so many other people so that you would minimize the risk. Some of the mutual funds that invest china include: Fidelity China Region, Aberdeen China Opportunities A, Guinness Atkinson China & Hong Kong, Dreyfus Greater China A, and ProFunds UltraChina. Investing in mutual funds would be charged a fee and also front and back loads. 

Exchange Traded Funds

Another way of investing in China would be in Exchange Traded Funds. Ishares FTSE China Fund, Claymore China Small Cap Fund, Ishares Hong Kong Fund, and Powershares Golden Dragon Halter Usx fund are prime examples of popular ETFS in the market now. ETFS are considered as tax efficient investments and have made investing a lot easier. ETFS have the liquidity of the stock where you can buy and sell the fund like a stock, but you also have the diversity of the a mutual fund. ETFS can hold 25 stocks and as many as 500 stocks. Basically, you can get a small share of many companies and at the same time you can buy and sell the fund like a stock. Most mutual funds would charge a fee when you cash out and sell your fund, also it would take a couple of days for the fund to be liquidated and for the funds to be sent to you after the sale. Many investors who are beginning investors would look into these type of investments because of the diversification of the fund and the manager of the fund is taking the risk of buying and selling the stocks in the fund. 


In conclusion, Investing in China can be risky, but at the same time it creates oppotunities to invest in the emerging market. Investors who don't want to stomach the risk or investors with little capital can invest in mutual funds or ETFS. They are safer investments because of the liquidity that the company has. If you are an investor that has a long horizon in investing or willing to take risk in a single company, then you can invest in single stocks such as PetroChina and Bidu. China is a superpower now, but it will continue being a giant for the next years to come. 

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I do own shares of Baidu (Bidu)

References

• http://www.britannica.com/EBchecked/topic/363395/Mao-Zedong
• http://finance.yahoo.com/
• www.cnbc.com