Jun 052014
 

Want to invest in China? The Shanghai stock market index (SSE) has returned an embarrassing -22% in the last 5 years. A buy and hold strategy would have lost money. Doh! The Chinese stock market is too mainstream anyway. So I’ve developed a better strategy to invest in the world’s second largest economy. My plan is a bit risky, and you’ve probably never heard of it before, but so far it’s proving to be very effective. If anyone else had held the same investments as me, their net worth would have also increased by more than $100,000 over the last 12 months 😀 See my fiscal updates category for details.

To successfully invest in China we have to think like hipsters, and buy stuff before it becomes cool 😉 So here is my strategy. Invest directly in China’s economy by purchasing financial assets OUTSIDE of China that the wealthy Chinese are also buying. Let’s study what the rich in China are investing in so we can predict with relative certainty how the next cohort of new Chinese millionaires will use their money as well. Then we just need to invest before they do.

So what are Chinese millionaires buying?

Generally speaking Chinese investors love real estate. An investment bank recently reported that the richest 1% in China owns about one third of all residential properties in the country. Holy hamburgers! Such property hogs 😯 They are so enamored with housing that it’s no surprise Chinese investors are looking elsewhere in the world to satisfy their real estate addiction 😕 The top three countries that are attracting Chinese investors are the U.S., Australia, and Canada.

14-06-chinese-realestate-foreign-countries Chinese foreign investors invest in china

Real estate agents do not have to disclose their client’s information to any global anti-money laundering organization. So foreign Chinese buyers can land with suitcases full of cash and get real estate deals done clean and fast.

China’s outbound real estate investment jumped by 25% in the first quarter of this year. Great Scott! The top cities to attract Chinese money so far in 2014 have been Chicago ($464 million), London ($348 million), Sydney ($243 million), Melbourne ($150 million), Los Angeles ($144 million) and San Francisco ($72 million), according to real estate firm Jones Lang LaSalle. Chinese buyers spent $30 Billion on overseas real estate in 2012. About $9 Billion of that went to the U.S. and a lot of that was in California.
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Chinese buyers are also fuelling the Australian property boom.

Sydney’s median house price has ballooned to $824,000, which is a record high. Melbourne’s is at $697,000 while Brisbane’s has risen to $509,000. And in 2012 Chinese buyers purchased 27% of new homes sold in London, England.

I’m sure almost everyone who reads this blog already knows about foreign investment in the Canadian real estate market, especially in Vancouver and Toronto. Graphs like the following do not show the entire picture. Average home prices did not fall in Canada even though consumers are stretched beyond their means because foreign buyers are still making purchases with cash.

14-06-debt-canus Chinese foreign investors

 

From reading comments on my blog, like this one from R in Regina, and other stories around the internet, I’m pretty sure more and more Chinese investors are purchasing precious farmland all around the world, especially in Africa, Europe, and of course North America. They are also very interested in technology companies in the U.S. So it’s good to own strong tech stocks like Apple, Amazon, Google, and Qualcomm, which have performed very well in the past, and will likely continue to do so as more people in developing countries gain access to new technologies and as China continues to invest in American technology businesses.

Economies grow the fastest when they allow the free market to thrive, which basically describes China today. Despite the terrible working conditions endured by many workers and the ongoing environmental damage, China does provide huge opportunities for the poor to become middle class, and for the middle class to become wealthy. And unfortunately it’s this upward mobility that’s driving the much needed growth in other countries. As long as China continues to roll out more millionaires every year, the stream of new money will continue to flow out of China and into investments in other, more politically stable countries.

14-06-chinese-iphone_c i phone in china invest in china

This represents an unprecedented opportunity for investors like you and I. Ten years from now land values in London, Chicago, Vancouver, Los Angeles, San Francisco, etc, will likely be worth a lot more than today thanks to new Chinese investments going into those cities. Invest in other hard assets as well. The wealthy in China likes to buy investments they can see and touch like farmland, buildings, gold, oil, etc. Canadian farmland values grew 22% last year. Shareholders of the energy company, Nexen, realized huge profits when it was sold to China National Offshore Oil Corp for a record $15 Billion a couple years ago. And don’t forget popular global brands like Starbucks, Disney, Intel, and McDonald’s. All these brands are huge in China, which is part of the reason I own their stocks. These companies also pay out increasingly higher dividends each year.

14-06-mcdonalds_in_china Chinese foreign investment invest in china

I may not agree with China’s values, or the way they conduct their businesses, or their human rights track record 🙁 But I do want to make money. So I will continue to invest heavily in Canadian real estate, farmland, the oil and gas sector, strategic technology companies, etc.

By investing in assets which we know will attract future wealthy Chinese buyers, we can buy things today at reasonable valuations before those Chinese millionaires of tomorrow can have a chance to drive up the prices even higher. 

China will create over 100,000 brand new millionaires next year in 2015. Chances are they will be coveting the same kinds of investments to preserve their wealth as those before them have done. Why not get in front of them and buy some prime Australian, Canadian, or U.S. real estate, or farms, or tech companies, or large businesses with strong brands, before any capital from the newly rich in China makes it overseas in the following year?

Some extremists will warn that one day Canada, U.S.A. and Australia may all be largely owned by China or Chinese interests. Many Canadians believe the Harper government is selling us out. As individual investors there’s not much we can do to change global politics or macro economic forces. But we can position ourselves financially so that we’ll be the ones left holding what the Chinese want 😎

So perhaps the best way to capture a part of the growth in China, is to actually invest closer to home 😉

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Random Useless Fact: The amount of knockoffs in China is too damn high

14-06-china-knockoffs

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Hannah @ Wise Dollar
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China is a rich country and very nice place to invest with. My uncle from U.S invested in China and he found it really useful. By the way, the picture with a man pointing to an iPhone word is funny. Hahaha!

Fionna Merciollis
Guest

I completely agree with the fact that it is mainly China that is not only generating the major share of Global Surplus but also creating enough disposable income in the hands of its people to spend and invest in their own country as well as in other countries. Though some of the cities in the USA and Australia have banned investment in properties by foreign nationals (where the target is mostly Chinese Millionaires), but this is not the general trend. I also agree with the fact that the real estate market in both the US and Australia are happening due to the investments done by the Chinese Millionaires, I doubt that this momentum will remain after 5 years. As I say this don’t think that I’m skeptic about China’s potential of growth. I’m saying this because the country has in the last one year shifted its economic policy. They are not stressing so much on growth now (in fact, the growth targets have come down from a consistent 9 to 10% to a moderte 7.5%). In fact, they are now trying to decrease their dependence of export led growth and want to expand domestic market by infusing more income to… Read more »

Phil
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You certainly have diverse reasons for doing what you do, and so far it has worked for you. I wish you happy capitalism my friend. I, on the other hand, stick closer to home for my investment thinking and continue to look to good Canadian companies offering/producing some of the best products and services out there. Now if the Chinese drive those prices great, but what I really want is good growing companies that can continue to make me happy for my goals. I’m a simple kinda guy, and would rather focus on what I know and am comfortable with.
On another note, not sure what is up with the markets lately, but they just continue to rise… Looking like yet another good year to be invested. My stock investments have been returning decent gains for 9 of the last 10 months, which is quite unusual, especially given we are still in the Great Bear market which began in 2000. – Cheers.

Asset-Grinder
Guest

Great article. Great idea to see where Chinese are buying. Canadian developed real estate markets are getting pretty toppy right now and it poses a concern for sustained growth. However consumer and cyclical staples have lots of room to grow. Really like YUM brands and APPL for the chinese global markets. Who doesnt like fried chicken and iphones?????

Good Day and Grind On!

Debs @ debtdebs.com
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I thought I heard that the stock of Dollarama continues to rise as well. Get this, I buy candy from Walmart and Canadian trinkets from Dollarama (key chains, playing cards, pens) to take to Shanghai when I go on business. My office colleagues always appreciate my candy (some take it home for their kids) and we share a good laugh when I dole out the trinkets with a big smile and say “Made in China”.

TSML
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TSML

I am with Phil. Why invest in Chinese companies when you can invest in American companies that do lots of business in China, like Asset-Grinder said. I’d be wary of investing in actual Chinese companies with very little knowledge and legitimate connections in the country. Besides, one can always just find a China index fund – take all the guesswork out of it and reap the average returns of the entire Chinese market!

sultanOfSwing
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sultanOfSwing

I think Phil and TSML are missing the point of the article. The point is that if you do your research, you can get ahead of the Chinese investment and pick up on the ‘local’ or semi-local (e.g. American) investment opportunities. That way if/when Chinese investment drives up the price, you’re already invested!

Phil
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Oh I get the point of the article, it’s just from my experience working in China and with Chinese companies, all is not what it seems, to me anyways. I understand what Liquid is working to leverage, all I’m saying is for my risk appetite, I’m sticking to my simple investing plan, as it has allowed me to stop working at an ‘early’ age. I made a good portion of my investing capital working for a Global Consumer Product Company and then investing it back into the Canadian market place. I first taught and leveraged the Mexican’s for our products in my working life and then quickly followed that by teaching the Chinese and leveraging other global market places, China, India, low cost EU, etc…. rules in these foreign lands are much different from here and far too complex and corrupt for me to comprehend, so from my humble learning’s I chose to focus and understand my environment and not ‘time’ the market. You must understand that this article is more about timing than investing, and I’d rather focus my skills to consistently making money than somewhat gambling on timing it right, should what is being predicted come to pass.… Read more »

NZ Muse
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There’s a lot of hate on foreign (read: Chinese) property buyers here in Auckland. Accurate? I have no idea. We’re in a similar spot to Vancouver and the like, only with wayyyy shittier rental market, so we’re extra screwed.

Investing like a hipster seems like a good general rule 😛