INVESTOR'S GUIDE 2004 - How to Play the China Boom
Investors have been rushing into this red-hot market. But be warned: It's one easy place to get burned. Here, a few safer ways to bet.
By Clay Chandler
Investing in China ought to be a no-brainer. With an economy that has barreled forward at an average rate of 7% for five years running and that will probably advance 9% in 2003 despite SARS, China boasts the world's most compelling growth story. As it rises, China is roiling markets everywhere—driving up the price of commodities from copper to gas, sucking in billions of dollars of investment from foreign multinationals, and fanning protectionist sentiment in Washington, Tokyo, and Brussels. For all appearances, China's transformation from communist backwater to manufacturing powerhouse is a megatrend right up there with the Industrial Revolution.
Little wonder, then, that institutional investors are clamoring for China stocks. Or that Warren Buffett, breaking with his penchant for investing close to home, plunged into China this year, acquiring a 13% stake in China's largest company, state-controlled oil giant PetroChina. But individual investors should think twice before seizing the China bull by its horns. The smarter approach is to dance around it—investing broadly in commodities, for example, or better yet, a well-managed fund that holds a mix of businesses incorporated in and outside the Chinese mainland. Why be cautious? China's equity markets are immature, fragmented, and susceptible to speculative mania. Executives are governed by imperatives that bear scant resemblance to those driving counterparts in full-fledged market economies. And Chinese stock prices are a poor proxy for the strength of the economy.
fortune.com |
