Its been a long while since I added to my China fund holdings. But I was not as keen on valuations previously so my holdings in China was a long term one based on the sheer potential of the Chinese economy. Year to date, the China A share market has been one of the worst performers within Asia, down more than 20% and although the H share market has fared better, sentiment there has also been affected to a certain degree.
Valuations for China companies are now very attractive, and all this even while the China economy continues to grow healthily. China is growing at the pace that developed countries like US, Japan can only dream about, but concerns about China’s tightening on bank lending and the curbs on its property market has caused a lot of wind to go out of its stock markets.
Yet, such things make me even more confident that it is alright to add to my China holdings right now. Who ever heard about precautionary measures taken before a huge crash or economic meltdown? US thought its banks and financial companies were the strongest in the world before the Lehman Brothers crisis. And it was doing nothing to prevent subprime mortgages from spiraling out of control. The fact that now in China, you need 50% up front cash just to buy a second property means that it is unlikely that China will face the kind of property crash that US experienced.
And when we finally go back to what is fundamentally happening, it is that China is already gradually becoming more important than US to this region’s prosperity, if it isn/’t already. The South Korean market has been resilient despite all that talk in US about a double dip because nowadays, more than 25% of its exports are to China, while exports to US make up just 11%. Singapore property prices has been pushed up because there are rich investors from China coming over to snap up property here (they are the biggest buyers at Sentosa cove). Where does the rich US investor feature within the Singapore property market? They aren’t mentioned because they are lag so far behind the Malaysians, Indonesians and Mainland Chinese buyers that they are a non-factor.
I don’t believe US will go into a double dip recession, and slowing growth in US doesn’t dim my outlook on Asian markets. It is only if China takes a fall, then will I really worry about Asia. At this point in time though, given the precautionary measures that the Chinese government is already taking, I think the Chinese government can walk the fine line between curbing the worst excesses in its financial and property sector without killing off too much growth in the process.
China and India remains a long term investment and will always have a place in my portfolio. In particular, the speed at which China is moving up the economic ladder cannot be denied. It is already the second largest economy behind US. In Asia, it has surpassed US as the most important market for most countries already. The Chinese A share market has taken a fall but the country’s economy itself is stronger than ever. Thus, I think having some holdings that will participate in China’s growth should be the strategy for most portfolios with some kind of equity holdings. China is simply too big and important to us over the next 2 to 3 decades to be held as part of a supplementary portfolio. Instead, China should be part of the core portfolio. The growth and importance of China is a huge mega trend that is going to remain in place for years and years. This doesn’t mean buy China whenever you want to invest something. For me, China is a long term core holding, and at current valuations, I think it is cheap enough to warrant further investment.
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