On a Fast Boat to China

At dinner the other evening at Le Cirque, one of the city’s top dining spots for the rich and famous, a money manager there estimated that up to 8% of the patrons were from China.Add a couple of announcements over the past week — a $1 billion Chinese retail acquisition by Wal-Mart and Versace’s plans to open nine stores in China — and signs of China’s emergence as an economic powerhouse are becoming a lot more conspicuous.Maybe so, but powder puff may seem a much more appropriate designation than powerhouse to investor Melody Mark, who got four stock tips from friends on various Chinese companies and bought them all, she wrote, because they all sounded like a sure thing.Not so. All four companies, despite being participants in the world’s fastest growing economy, are down in price and one has folded, she complained in an email.”Everyone raves about China,”she wrote,”but I found the market there risky and over-rated.From now on, my Chinese exposure is strictly lobster Cantonese and wonton soup. If I’m wrong, tell me.”Sorry Melody, but you’re wrong! You picked the right market, but the wrong stocks. It can happen in any country. Just look at China’s market performance. So far this year, China’s Shanghai B-share Index is up almost 69%, after having shot up 14% in the past month and recently 9.7% in a single day.What’s more, some individual Chinese stocks are up even more than the market. One is China Life, which has surged from $30 to $80 in less than a year. China Petroleum and Chemical Corp. is another big winner, having climbed 46% in the same period despite the pullback in oil prices. Further, the performances of Chinese IPOs are breaking world records.But China, it should be noted, is not without risk. “There are questions of the country being able to sustain its above-average economic growth, but I would definitely be there,” investment advisor Michael Larson tells me.China’s stocks, he says, are leaving the American market in the dust for a good reason; its economy is growing three times faster. (Its 2006 GDP growth is pegged at 10%, versus 3.4% for America and another 10% growth is seen likely in 2007, compared with estimated growth here of 2.9%).Further, Mr. Larson points out, China’s investment in its infrastructure — national utilities and highways — is taking off; Trade is surging; foreign reserves are exploding, and China’s central bank has almost $1 trillion in reserves.Mr. Larson, the associate editor of Safe Money Report, a monthly newsletter out of Jupiter, Fla., takes additional note of the signs of the country’s financial vigor, as well some other economic plusses, in making what he regards as a compelling case for investors to put some of their speculative money to work in China. Some highlights:In August, China’s retail sales surged 13.8% or nearly 70 times the paltry 0.2% rate of growth in America.A whopping 1.8 million cars were sold in China in the first six months of the year, up 47% from a year earlier.China’s trade surplus soared to a record $18.8 billion in August, up from $14.6 billion in July.As a result, China’s surplus for the year is now just a few billion shy of the $102 billion seen last year, with several months still to go.Compared to 2005, China’s urban fixed investment spiked 30.5% in the first seven months.Mainland Chinese industrial companies have seen earnings shoot up 29.1% through August.China’s power consumption is projected to double over the next 20 years.As a result, its authorities forecast they will use 600 million tons of crude oil ayear by 2020, an estimate that may be underestimatedChina, Mr. Larson observes, has become the world’s factory, importing $660 billion in commodities and raw materials, and turning them into $1.1 trillion in goods and services. In short, he says, as long as Chinese demand for commodities remains strong and companies there continue to churn out sizzling results, investing in China holds the promise of major rewards.He has two favorite stocks, each of which, he believes, can throw off a 20% return over the next 12 months. One is China Unicom ($10.50), the second largest provider of cell phones in a market that’s soon to become the world’s largest. China has 1.3 billion people and 438 million cell phone users, which means market penetration is only 34%. Expectations are that China will have 568 million subscribers by 2010, a further 30% rise in just a few years.His other pick is Huaneng Power International ($30.81), China’s state electricity regulatory commission, which expects power generation capacity to surge this year alone by 15% or 75,000 megawatts. That would follow a similar increase last year and leave China with 600,000 megawatts of generation capacity. Already, profit jumped 29% to $275 million in the first half, topping analysts’ forecasts.Another attraction is the company’s 4.15% annual dividend.For a more diversified Chinese market strategy, Mr. Larson suggests an exchange-traded fund embracing 25 of the country’s largest companies. Traded on the Big Board under the symbol FXI ($84.91), it’s the Ishares FTSE/Xinhua China 25 Index Fund.dandordan@aol.com

On a Fast Boat to China

On a Fast Boat to China

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