China Trade

Thu, 2017/11/30 - 2:36pm | Your editor
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I am as keen as the next investor to benefit from the increase in Chinese consumption and its economic growth. Chinese people want appliances, cars, trips, and experiences, and the government is aiming to let them have it all. This is not a bubble like bitcoin or tulip mania. They also may want more freedom and news, but that is not an easy investment pick.

China represents about 16% of global gross national production but its booming stock markets only account for about 3% of the investments available globally. If you then strip out state-controlled entities with dodgy accounts and hidden debt, there are even fewer Chinese investment options to consider.

That helps explain why the few private sector companies participating in the growth move are trading at ridiculously high multiples, mainly because of lemming-like Chinese neophyte investors buying whatever their friends are touting today. And passive funds are buying more of what went up.

A small number of high-growth companies have become the bulls in the China shop with eye-watering multiples. We are not expecting to exit them altogether now but we are cutting our risks with these high-flyers and have doing that for months. But I am not selling out because I want to be present in as Chinese people move to a middle-class way of life.

The selloff in China-linked Internet leaders continued today in Hong Kong and Shanghai markets after its impact on US tech stocks took a few billions away from our FAANG owners. That the FAANGs are up here today changes nothing in Hong Kong or China.

Your editor opted to exit her main Chinese fund holding, the SPDR S&P China ETF, GXC, overnight. It is a rather mindless index tracker fund trying to replicate the S&P China BMI Index. It is grossly overweight the local hotties: 13.6% (its largest stake) in Tencent Holdings; 11.7% in Alibaba; 3.7% in Baidu; and 1.7% in JD.com. I sold GXC at $107 and change per ETF.

My reason was that I figured the US selloff would be copied in Asian markets today, which was the case. The flops there were led by Tencent Holdings in Hong Kong while other more sedate markets like Japan were among the tops. My other reasons will be shared with my paid subscribers in their section of this blog.

My end-of-year decisions now will focus on how to put this money to work.

I am looking at stocks we already own to add to, in South Africa, Israel, Spain, India, Mexico, Finland, Brazil, Argentina, Chile, and Canada. More for paid subscribers follows.

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