How You Can Profit from the Rise of China
Legendary investor Jim Rogers (co-founder of the Quantum Fund) famously said: "If you were smart in 1807 you moved to London, if you were smart in 1907 you moved to New York City, and if you are smart in 2007 you move to Asia."
More specifically, one of my core investment theses is that China will be where the next trillion dollars of wealth will be created. But since most Americans can't literally act on Rogers' advice, I believe everyone should at least formulate a strategy to profit from China's inevitable rise.
One of the easiest way to "bet" on China or any country is through its currency. That's because as China's economic growth and business activity continue to grow, there should be a commensurate level of increase in the transactional demand for its money. So an investment in the Chinese RMB now should yield a very favorable exchange back to the US dollar upon conversion at a future point should the RMB appreciate in line with the increases in transactional demand.
But this has been a challenge given that the Chinese RMB is a non-convertible currency, or a currency that is controlled by the Chinese government, not freely traded on Forex markets, and has a fixed exchange rate to the US.
I'll offer a few thoughts here for working around this hurdle:
1. Open a premium account with an international bank such as HSBC, which through their Premier offering gives you the ability to also have a linked account in other countries such as China that hold deposits in that native currency. However, these types of accounts are typically not for the average investor and require high minimum deposit levels in the host country (at least $250K for HSBC). And since the accounts are technically held outside of the US, there is no FDIC protection for bank insolvency.
2. Open an account with an bank that offers demand deposit accounts in foreign currencies - one that comes to mind is Everbank with their World Currency offering. This would enable you to have some portion of your assets denominated in RMB to bet on the long term adjustment of the RMB - USD exchange rate. Compared to the first option above, this requires much lower minimums and a side benefit is that it is FDIC insured.
3. A third option is the relatively new ETF from Wisdom Tree that goes by the symbol CYB. I like ETFs because they have low fees and in this case, CYB provides a very liquid way to invest in the Chinese RMB.
4. Lastly, one could certainly look to invest in Chinese stocks or mutual funds as a way of participating in the nation's economic growth. The only word of caution here is that this is not the same bet on macroeconomics as currency since you are also dependent on the performance of the individual companies that you are investing in. Good investment ideas in this vein run the spectrum and is a topic that requires a much fuller examination but ideas to consider here may be materials/commodities companies that have a big presence in China or Chinese companies that have a broad footprint for the rapidly growing consumer economy. For those interested in this option, the 3 China Profit Plays article from Motley Fool is a good resource with some ideas to get you started.
I've included links to breaking news in China below for those interested so check back frequently!
More specifically, one of my core investment theses is that China will be where the next trillion dollars of wealth will be created. But since most Americans can't literally act on Rogers' advice, I believe everyone should at least formulate a strategy to profit from China's inevitable rise.
One of the easiest way to "bet" on China or any country is through its currency. That's because as China's economic growth and business activity continue to grow, there should be a commensurate level of increase in the transactional demand for its money. So an investment in the Chinese RMB now should yield a very favorable exchange back to the US dollar upon conversion at a future point should the RMB appreciate in line with the increases in transactional demand.
But this has been a challenge given that the Chinese RMB is a non-convertible currency, or a currency that is controlled by the Chinese government, not freely traded on Forex markets, and has a fixed exchange rate to the US.
I'll offer a few thoughts here for working around this hurdle:
1. Open a premium account with an international bank such as HSBC, which through their Premier offering gives you the ability to also have a linked account in other countries such as China that hold deposits in that native currency. However, these types of accounts are typically not for the average investor and require high minimum deposit levels in the host country (at least $250K for HSBC). And since the accounts are technically held outside of the US, there is no FDIC protection for bank insolvency.
2. Open an account with an bank that offers demand deposit accounts in foreign currencies - one that comes to mind is Everbank with their World Currency offering. This would enable you to have some portion of your assets denominated in RMB to bet on the long term adjustment of the RMB - USD exchange rate. Compared to the first option above, this requires much lower minimums and a side benefit is that it is FDIC insured.
3. A third option is the relatively new ETF from Wisdom Tree that goes by the symbol CYB. I like ETFs because they have low fees and in this case, CYB provides a very liquid way to invest in the Chinese RMB.
4. Lastly, one could certainly look to invest in Chinese stocks or mutual funds as a way of participating in the nation's economic growth. The only word of caution here is that this is not the same bet on macroeconomics as currency since you are also dependent on the performance of the individual companies that you are investing in. Good investment ideas in this vein run the spectrum and is a topic that requires a much fuller examination but ideas to consider here may be materials/commodities companies that have a big presence in China or Chinese companies that have a broad footprint for the rapidly growing consumer economy. For those interested in this option, the 3 China Profit Plays article from Motley Fool is a good resource with some ideas to get you started.
I've included links to breaking news in China below for those interested so check back frequently!
|
|
|
