The case for investing in China
The case for investing in China
I have had discussions on this platform about my investments in China, the overwhelming response I get is negative. In this article I would like to try and provide an objective, data focused case to invest in China. In a soon coming article I will look at the opposite position and the potential risks of investing in China.
Less competition
The first reason to consider investments in China is that there are less people searching there, and as a result more opportunities. Approximately 10%-15% of Chinese citizens own or invest in stocks. With so few people even looking at the Chinese market the amount of stocks trading below fair value is greater than that in my home country of the United States.
Valuations
The idea that there are more opportunities is reflected in the average valuation of Chinese equities. A metric I like to use for broad valuations is the CAPE ratio. It can be understood as the P/E ratio using 10 years of earnings. This ratio is used in an attempt to disregard cyclical earnings changes.
worldpopulationreview.com/country-rankings/cape-ratio-by-country
The above link is the current CAPE ratios of countries around the world based on the most recent available data. At the current date 08/23/2024 China has a CAPE ratio of 13. This is compared with a CAPE ratio of 28 in the United States. In the following article I often refer to is data showing the average returns when investing at different CAPE ratios. In short the data shows that there is a substantial correlation between valuations and subsequent investment returns.
lynalden.com/shiller-pe-cape-ratio/
Economic Data
Now there are many things to discuss in this section so I will do my best to keep it brief and to the main points on why I invest in China.
Personal Savings Rate: China's personal savings rate averages around 40%. This is in contrast to the United States at 3.5% consistently.
Balance of Trade: Since the year 2000 China has maintained large trade surpluses as a result of their massive manufacturing output (30% of global manufacturing capacity). This is a result of their hybrid state and market run economy. China's protectionist industrial policy allowed them to develop their own local industry offering the only real competitors to Silicon Valley tech firms.
In contrast the United States has had a trade deficit since the 1980's forcing us to de-industrialize and in return create a fictionalized economy based on debt and speculation. The US system requires constant inflows of capital to maintain it's currency and economic supremacy.
These are the two data points I would point to to get an idea of why China has overtaken the US as the worlds largest economy in terms of purchasing power parity (their local currency) as well as the two points I bring up the most. I hope I have given a different perspective of the Chinese economy.
Stay tuned for the bearish case of investing in China, and have a great day!
I have had discussions on this platform about my investments in China, the overwhelming response I get is negative. In this article I would like to try and provide an objective, data focused case to invest in China. In a soon coming article I will look at the opposite position and the potential risks of investing in China.
Less competition
The first reason to consider investments in China is that there are less people searching there, and as a result more opportunities. Approximately 10%-15% of Chinese citizens own or invest in stocks. With so few people even looking at the Chinese market the amount of stocks trading below fair value is greater than that in my home country of the United States.
Valuations
The idea that there are more opportunities is reflected in the average valuation of Chinese equities. A metric I like to use for broad valuations is the CAPE ratio. It can be understood as the P/E ratio using 10 years of earnings. This ratio is used in an attempt to disregard cyclical earnings changes.
worldpopulationreview.com/country-rankings/cape-ratio-by-country
The above link is the current CAPE ratios of countries around the world based on the most recent available data. At the current date 08/23/2024 China has a CAPE ratio of 13. This is compared with a CAPE ratio of 28 in the United States. In the following article I often refer to is data showing the average returns when investing at different CAPE ratios. In short the data shows that there is a substantial correlation between valuations and subsequent investment returns.
lynalden.com/shiller-pe-cape-ratio/
Economic Data
Now there are many things to discuss in this section so I will do my best to keep it brief and to the main points on why I invest in China.
Personal Savings Rate: China's personal savings rate averages around 40%. This is in contrast to the United States at 3.5% consistently.
Balance of Trade: Since the year 2000 China has maintained large trade surpluses as a result of their massive manufacturing output (30% of global manufacturing capacity). This is a result of their hybrid state and market run economy. China's protectionist industrial policy allowed them to develop their own local industry offering the only real competitors to Silicon Valley tech firms.
In contrast the United States has had a trade deficit since the 1980's forcing us to de-industrialize and in return create a fictionalized economy based on debt and speculation. The US system requires constant inflows of capital to maintain it's currency and economic supremacy.
These are the two data points I would point to to get an idea of why China has overtaken the US as the worlds largest economy in terms of purchasing power parity (their local currency) as well as the two points I bring up the most. I hope I have given a different perspective of the Chinese economy.
Stay tuned for the bearish case of investing in China, and have a great day!
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.