Time to invest in China?

[Adamski]

Is it time to invest in the land of zero covid and authoritarian government? Their stock market has taken a battering this year, but appears to have levelled off. And stability before recovery? The level off of prices could indicate investors no longer panicking.

China as a market is seriously undervalued compared to the US and will overtake the US economy in maybe early 2030s, although a slower growth path cause of shrinking working age population like in Japan would see 2050s. So in my lifetime could see China as world's largest economy would then see a reorientation of world economic order and stock valuations to reflect that.

As investors I think should have some China holdings as the developed indices exclude China as that that think to include developing nations increases diversification, reduces risk and avoid home bias. Or do you think not a good idea?

[BullDog]

Nobody knows?

My own frame of mind is that the Ukraine conflict is looking increasingly like becoming a long term proxy war between the Western democracies and the totalitarian allies. I am uncomfortable with the leverage China in particular has over the Western economies. We in the West have stupidly sleep walked into a situation where our entire life style and infrastructure depends on the goodwill of the Chinese communist party.

Whether to invest in China? Not for me.

[scrumpyjack]

Whatever happens to the Chinese economy, I have no confidence that the fruits of its success will be allowed to accrue to Western investors.
That is the huge risk of westerners investing in Chinese companies. It isn't as simple as simply projecting what Chinese economic growth will be.

[Dod101]

Is it time to invest in the land of zero covid and authoritarian government? Their stock market has taken a battering this year, but appears to have levelled off. And stability before recovery? The level off of prices could indicate investors no longer panicking.

China as a market is seriously undervalued compared to the US and will overtake the US economy in maybe early 2030s, although a slower growth path cause of shrinking working age population like in Japan would see 2050s. So in my lifetime could see China as world's largest economy would then see a reorientation of world economic order and stock valuations to reflect that.

As investors I think should have some China holdings as the developed indices exclude China as that that think to include developing nations increases diversification, reduces risk and avoid home bias. Or do you think not a good idea?

That is the script that Baillie Gifford espouses and of course you can buy into it through Baillie Gifford China Growth. I am inclined to agree with scrumpyjack and Bulldog though. The trouble with China is that they do not really accept investors making money. They tolerate it if it suits them but they certainly do not enthuse over it. It is after all communist and the current president is more hard line than they have been for a long while.

Dod

[Bagger46]

Well, it is not for everybody, but despite my reservations, I feel that I must hold a slice in that market. The biggest gainer of the dreadful events in Ukraine will, I feel, be China( they will get sweet deals galore from Putin), unfortunately for us all. Might as well benefit from it a bit.

Even after the recent sharp drop, my investments in that region are still 82% up over the last five years, so not too shabby, and I have recently re-started adding to these holdings.

This applies to my investments in general. I did a good bit of selling in the second half of 2021, as many holdings were going up beyond reason, as posted elsewhere, and I am gradually getting back in. So far I have re-deployed 31% of my spare dosh. I have always preferred to get gradually back in on the way down, does not always work, challenges the nerves a touch, but this is the way I do it, seems to pay off longer term for me over the past few decades.

Bagger

[OLTB]

Professor Russell Napier was interviewed by Investors Chronicle in May and it was a fascinating listen https://www.investorschronicle.co.uk/po ... s-product/ .

He talked a little about China during the interview and considers China is currently not investable. He prefers Japan and other 'friendly' countries in the Far East.

Of course he may be wrong, but I would recommend listening if you have a spare 50 minutes as there are many topics covered.

OLTB.

[AWOL]

I don't like the risks nor the ethics of inventing in China so i don't.

[Lanark]

It is after all communist...

They may call themselves that but China has not been communist for a long time, just like Russia it is an authoritarian regime more like a hard right wing. There is a reason Trump likes to cozy up with the Russians.

[Dod101]

It is after all communist...

They may call themselves that but China has not been communist for a long time, just like Russia it is an authoritarian regime more like a hard right wing. There is a reason Trump likes to cozy up with the Russians.

OK. I am not even sure that it claims to be Communist in the classic sense of that term, but whatever, it does not believe in a free capitalist society which Is I think what matters when considering investment there.

Dod

[scrumpyjack]

It is after all communist...

They may call themselves that but China has not been communist for a long time, just like Russia it is an authoritarian regime more like a hard right wing. There is a reason Trump likes to cozy up with the Russians.

OK. I am not even sure that it claims to be Communist in the classic sense of that term, but whatever, it does not believe in a free capitalist society which Is I think what matters when considering investment there.

Dod

And just look what had happened to western investments in Russia! Investing in authoritarian countries is a dangerous game

[elephanthunt11]

For all of my investing lifetime, I have held anti-china rhetoric to be exactly that; rhetoric.

I've been investing for 5 years, starting at 25, and decided to have my asset allocation at around 15% to emerging markets, China being the prime constituent of EM index trackers.

I couldn't believe people would dismiss opportunities to invest in companies like Alibaba, Meituan, Ping an insurance, ByteDance, JD.com (the list goes on) because of a "China bad" mindset.

And then the cracks started to appear. We always knew about CCP involvement in enterprise, it then came to light that the CCP installs representatives within the upper orders of enterprise to ensure the company is towing the line and that no one is having the wrong opinions.

I then learnt about ADRs, a perfectly acceptable vehicle to invest in foreign equites. But using ADRs to invest in foreign equities because you cannot own those equities unless you're a citizen raised an eyebrow.

I then learnt about Evergrande. I then learnt about the innumerable cases (apologies for not being able to provide links) of China manipulating financial data.

I then learnt about the highly questionable practices of TikTok (ByteDance), as set out in their T&Cs and the ungodly amount of data you share with them, which frankly makes facebook's T&Cs look tame. What are the chances that the CCP are not demanding this data from their companies?

I then learnt about Ant Financial (Alipay), a subsidiary (IIRC) of Alibaba and how, effectively, beijing split the company up because (mobile payment via QR code is ubiquitous in China) is potentially threatened the CCP's plans of implementing a CBDC.

I then learnt about how they 'disappeared' Jack Ma, the founder of Alibaba because he voiced some of the wrong opinions. Imagine Jeff Bezos or Richard Branson being 'disappeared' because he dared to question the govt. What would be the implication for the share price?

I had accumulated around almost £10k in my EM tracker with around a third of that exposed to China.

I sold out, China simply can't be trusted.

[CliffEdge]

It's simply good and evil. The leaderships of Russia and China are evil.
We hope that the leaderships of the west do not follow suit. Convergence of wickedness. We've already seen evidence of a trend - Boris, Rees mogg, Trump, and other pathological characters, as well as a brainwashed brain-damaged UK electorate.

[scrumpyjack]

It's simply good and evil. The leaderships of Russia and China are evil.
We hope that the leaderships of the west do not follow suit. Convergence of wickedness. We've already seen evidence of a trend - Boris, Rees mogg, Trump, and other pathological characters, as well as a brainwashed brain-damaged UK electorate.

They are both 'evil empires' as I think Ronnie Reagan put it.

Western investors will be first on their list to be screwed, not to share economic success.

[jaizan]

I've had a good proportion of my money invested in Asia. I spend several months a year in Asia, so it REDUCES my currency risk.

However, I'm very wary of China.
Just imagine the scenario where China invaded Taiwan. At the very least, there would be western sanctions and tit for tat retaliation, leaving my investments down over 90%. Or worse.

A few months ago, I calculated that about 12.5% of my portfolio was in China, Hong Kong or Taiwan. I'm slowly reducing that. Actually, I would reduce it much more quickly, but prefer not to sell when their market is relatively cheap.
The one saving grace is that I offloaded a good chunk of my FCSS back when it was 400p. Should have done more.

The other problem is "diversified" Asian trusts adding China.
Aberdeen Asset management had Asian funds which wouldn't touch China due to corporate governance issues. Now those same funds are adding Chinese stocks and employing fund managers to handle that region. When asked, they could not explain where corporate governance has improved. Actually, Aberdeen are so muddled these days that they can't explain anything or write with clarity in their annual reports. Or even spell their name.

Worse still, Aberdeen shut their Thai investment trust and rolled the money over into a China fund. I took the exit at NAV option for the largest permitted proportion of my holdings, since that was the most economic way to exit.
Also, it had the pleasant side effect of reducing Aberdeen AUM, which selling the stock to another punter does not.

MSCI are increasing the China weighting in many indices.

For many decades, we have had "Asia", "Asia Pacific" and "Asia Excluding Japan" categories. What is sorely needed is an "Asia Excluding China" category and corresponding indices. Then the investor can make his or her own choice.

I prefer some control. I managed to sell my JP Morgan Russian Securities back in February before the invasion. Actually at a profit, although a pitful one for the holding period. Most of the diversified Emerging Market trusts seem to have missed that opportunity.

[spasmodicus]

It's interesting that HMCH (Hong Kong focused China ETF) is about 23% down YTD, whereas IASH (China A shares mainland focused) is "only" down 16%.
For comparison, VWRL (global ETF) is down about 10% and ISF (FTSE 100 ETF) down 8% YTD.

A case of the dictatorship in China screwing the gweilos more than they screw the locals perhaps. Ethics apart, avoiding one particular sector because you consider it risky is to assert that your predictive powers are superior to those of the market. Diversification will help to ameliorate the effects of poor prediction, so Imo a better approach is to look at the potential upside as well and scale your investments accordingly. Meanwhile, back in the UK, our government is doing its best to screw our economy, not through evil intent but through incompetence.

Diversely
S
(I hold HMCH, IASH and ISF among others)

[ukmtk]

Unfortunately I too hold HMCH (currently 5% of my SIPP).
When my holding was down at -47% I bought some more.
What I bought gained 25% in 4 weeks - I'm only -27% now.

I also hold HFEL for income.

Ian Cowie sold out of China due to its politics.
His advice was that the smart place for money now is India.
Something to consider?

[Dod101]

Unfortunately I too hold HMCH (currently 5% of my SIPP).
When my holding was down at -47% I bought some more.
What I bought gained 25% in 4 weeks - I'm only -27% now.

I also hold HFEL for income.

Ian Cowie sold out of China due to its politics.
His advice was that the smart place for money now is India.
Something to consider?

You certainly do not hold HFEL for capital gains. I gave up on it long ago for all the reasons argued at the time.

I would rather listen to Baillie Gifford than Ian Cowie, although he seems to have a good track record but when I read his column in the Sunday Times (haven't seen it for a couple off weeks or so?) I find it just a bit too smug.

Good for you with your gains on HMCH. My only holding directly in China was BG China Growth which so far has not shown itself to be the case and I sold some time back. I get bits and pieces of China from different ITs but on the whole am content to let its potential pass me by for now.

As for India, I have no view one way or the other.

Dod

[spasmodicus]

Unfortunately I too hold HMCH (currently 5% of my SIPP).
His advice was that the smart place for money now is India.
Something to consider?

Hmmm, I hold XNIF, an India tracker, nearly 8% of my global ETFs holdings, which has done pretty well (50% growth in 5 years) but I worry that reversion to the mean may be in the offing. Currently HMCH, like @ukmtk's holding is about 5%. I can increase HMCH, or decrease XNIF, or both to rebalance but I haven't worked out a consistent methodology for doing this. I took a hit from Russia when the Ukraine war started, so now I'm worried that the "dictatorship non- democratic 1-party state economies don't do well in the long term" theory is playing out. That said, the UK economy isn't exactly a good advert for multi (2?) party states either and for that matter, the NASDAQ is showing classic reversion to mean tendencies at the moment. Latin America is another good case study. That did pretty well, at least in the form of LTAM, over the last year, showing about a 40% gain until shortly after Lula got elected (LTAM has over 60% weighting in Brazil)at which point I fortunately rebalanced it. It subsequently dropped almost 20%. On average, my global ETF collection is doing about the same as VWRL over the last year, so Q. why don't I just go with that instead? A. because it's more fun this way, or something.

I would expect China stocks to jump on any serious change in zero-covid policy, irrespective of overall politics, but when might that happen?

S

[ukmtk]

As I'm only interested in income rather than growth I'm going to be investing most of my money into: HDIV, HFEL & VHYL.
They are all about 9% of my portfolio (listed in the Gilts now for longer term thread).

I took a big hit this year on API & RGL. They are described as proxy bond funds.
They had been badly affected by Covid but had been recovering but Ukraine & Truss' mini mayhem knocked them back.
The reason I like them is that they are backed by something tangible.

VHYL, VFEM & VUKE are the major positives in my portfolio.
I only hold 9 funds.

[ukmtk]

Regarding HMCH I might give up on it when/if I get to just a 20% loss.
I had bought it in the the hope that it would go up not down - sigh.