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