Posted On: 7/28/2015 12:15 PM
In my last blog I talked about how investing in Asian Mutual Funds was a long term investment. I hope some of you took my advice and didn’t panic sell based upon the constant news reported on the Chinese market slide.
Since I last wrote to you I have listened, on a daily basis, to the same commentaries that you probably have as well about how this market correction will affect the Chinese stock market and the Chinese consumer. I have listened to many analysts comment about the economic impact that will derail the consumer from spending money on such items as the iPhone, automobiles, and other goods and services. If you are an investor in Apple stock, you have seen how the stock price has gone down significantly based upon assumptions that Apple will not sell as many phones in China.
Understanding the Chinese Consumer is Important When You Invest in The Chinese Stock Market
I recently participated in a conference call with two of the portfolio managers of the China Dividend Fund, one of whom is Andy Rothman. What is interesting about Andy is that he is originally from Brooklyn, but lived in Mainland China for 25 years so he has a very unique perspective on China. For full disclosure, OMC owns this fund through our firm.
If you listen to the analyst, many profess that consumer spending is going to retrench. Andy, who recently appeared on CNBC, strongly disagrees. Obviously when the U.S. went through the 2008 market crash and many investors lost significant amounts of money, the consumer did stop spending. To make matters worse, the housing market plummeted and investors found that they owed more on their mortgage than their house was worth.
Andy’s reasoning is that the Chinese investor is only about 1% of the population and the majority had $15,000 or less in the Chinese stock market. Remember, the Chinese can only invest in A Shares. So, with so few investors, the consumer is still in a position to spend. And it is noteworthy to mention that since many U.S. consumers/investors save through some type of pension plan losing money affected their retirement. Retirement plans do not exist in China.
There is a Saying in the Financial World that You Should Buy Low and Sell High. How Does That Relate to the Chinese Stock Market?
I’m sure you have heard that saying millions of times. It isn’t always easy. I know from personal experience. Certainly, the Chinese government is more involved in the Chinese stock market than it should be with restricting which stocks “temporarily” can be traded and while some investors did borrow on margin to purchase stocks, bank deposits are growing. Most Chinese are still savers. And unlike, even a decade ago, about 80% of businesses now are privately owned. China’s growth prospects are similar to the U.S. market in the 1950’s. Do any of you remember Philco, the first TV with three stations? Seems impossible to imagine today.
If you own an Asian Fund, now might be the time to gradually add to your investment. If you don’t currently own one, it may be that you should add it to your portfolio. Even with the correction, the Chinese stock market is still up approximately 90% in the last 12 months. My recommendation is to not jump in with both feet at once, but stagger your purchases.
If you are invested or are considering investing in the Chinese stock market, let's talk about the best financial strategy for your individual situation.
