It is no secret that China has become a safe haven for foreign direct investment. With a population of more than 1.38 billion individuals, it is not surprising that businesses and countries alike would consider foreign investment in China.
Currently, China is the world’s second largest economy based on nominal GDP. Yet, China is the world’s biggest economy when measured in terms of GDP based on purchasing power parity.
If investors want a significant ROI, they should definitely consider investing in China.
Therefore, it is essential for one to be aware of the latest trends with regards to investing in China.
INVESTMENT OPPORTUNITIES IN CHINA
A significant source of investment opportunities lies within the surging Chinese Internet. Chinese Internet users consist of over 21% of the world’s population of Internet users.
Local Chinese Internet companies have been outperforming U.S based competitors due to their emphasis on innovation. For instance, Tencent Holdings Ltd.’s solid performance is due to its WeChat app. WeChat is a mobile platform that combines features such as direct messaging, video messaging and payments, something it’s American competitors are only starting to explore. WeChat has outclassed competitors such as Twitter and WhatsApp due to innovation and functionality.
If investors want to cash in on the Chinese Internet trend, they should consider the KraneShares CSI China Internet ETF. This ETF is rated five stars by Morningstar and is the top-performing fund in Morningstar’s China Region category over the past three years.
Another significant source of investment in China can be seen in its real estate market. Within the past year, residential real estate prices have risen by 23% in 10 Chinese cities.
The Guggenheim Real Estate ETF is a great pick for investors looking to take advantage of the Chinese real estate market. This four-star Morningstar ETF has outperformed its benchmarks consistently for several years.
BENEFITS OF INVESTING IN CHINA
There are quite a few benefits when one invests in one of the world’s largest economies. China is an attractive destination with regards to foreign investment. China is currently ranked 2nd in the world in terms of global foreign direct investment.
Investors can capitalize on the future potential of an economy that is in a transitionary period. Traditionally, China has high savings and low consumption. However, China is growing into a consumer-driven economy with less emphasis on savings.
As China endeavors to become more of a free-market economy, the nation will become more investment-friendly as a result. Thus, investors would gain a great advantage by jumping in during this economic shift.
RISKS OF INVESTING IN CHINA
China is in the midst of an economic slowdown. Given that China is the world’s second biggest economy and the world’s top trader of goods, a poor performance from China can affect the global economy.
In July, Chinese imports fell 12.5% year-over-year due to shrinking global commodity values and domestic demand. This is the 21st straight month that Chinese imports have declined. Chinese exports declined by 4.4%. Chinese exports have dropped in 12 of the past 13 months.
Additionally, China’s GDP growth has been trending downward for the past several years. Analysts have also become increasingly wary of China’s rising debt. All of these issues have caused the Shanghai composite index to decline by 20% within the past year.
COMPANIES INVESTING IN CHINA TODAY
Two prime examples of companies that have gone all in on China investment are APPLE INC. and STARBUCKS.
Recently, Apple invested 1 billion dollars in a Chinese ride-hailing company called Didi Chuxing in order to enhance their understanding of the Chinese market.
Apple’s significant investment in China can be seen in its recent 10-Q. Over 20% of Apple’s recent quarterly results were generated from the Greater China region.
Another company that is all in on the idea of investing China is Starbucks (SBUX). Starbucks entered the Chinese market in 1999. Earlier this year, Starbucks CEO Howard Schultz announced plans to open up 500 new Starbucks locations each year for the next five years.
Four months later, Schultz vowed to open its first International Starbucks Reserve Roastery and Tasting Room in Shanghai next year. This 30,000 square foot location would be the largest Starbucks ever created.
When it comes to investing there is always a certain amount of risk associated with it. However, from where we’re standing, China is looking pretty good right now!
Before you jump the gun and put all your money into the Chinese economy, get educated about different world economies and how they function in the WSS course: World Economics.
Knowledge is power and the more you know, the better you will be at make smart investment decisions!