8 Reasons Smart Investors Are Bullish on China
Many Chinese securities have not enjoyed 8's blessings of late. The country's main exchange-traded fund, FTSE China 25 (FXI), is down 14% for 2014. Blue chips such as China Mobile (CHL) (-17.94%),the world's largest cell phone company, and PetroChina (PTR) (-9.25%), a major oil firm, are also off for the year. While there has been little recent good fortune for owners of those Chinese securities, here are eight reasons to be bullish about the economic future of the People's Republic:
Biggest trading nation on Earth: China import and exports more than any other country. That delivers to it a great deal of clout in international trade.
World's largest economy in terms of purchasing power: The biggest client always has the most buying power. Often times, it can result in the best deals.More net income from exports: Each month, China books billions in profits from buying and selling goods and services with other countries. That has resulted in foreign reserves of close to $4 trillion, the most in the world. Highest savings rate: In addition to earning more, China saves more than any other country. That keeps interest rates low. It also provides lower cost capital for business lending, home buying, and other commercial activities critical for economic development Shift from manufacturing to consumer will unlock the spending power of its people: A main goal of Beijing is for the Chinese economy to move away from reliance on manufacturing to unlock the potential of the consumer sector. With more people in the world with more purchasing power than any other country, that is huge. Urbanization: Economist Carl Weinberg told Barron's, "Bet on China, but not Japan or Europe." China "grows by moving people from the farms to the cities, and every time someone moves off the farm into the city, they contribute six times more to GDP than they did on the farm. If you do this 10 or 20 million times per year, you get six percent to eight percent GDP growth just out of the demographics. So that's my outlook for China." A recent New York Times article reported that China's newest urbanization effort will relocate 100 million people by 2020 ... do the math. Natural gas reserves: Unleashing the power of natural gas production has done much for the American economy. It has created jobs, improved the balance of trade with other nations, and allowed for the United States to start exporting natural gas. According to consulting firm IHS that was partially funded by energy and manufacturing groups, American natural gas supports 1.2 million jobs and has added $1200 to the annual discretionary income of each family. China has huge natural gas reserves, about 50% more than the United States ... again, the math speaks for itself. A clean national balance sheet: Japan, Great Britain, the United States and other countries are loaded down with debt. China has debt, but nothing compared to the crushing loads of the others. Combined with the domestic savings rate, Beijing has a great deal of economic flexibility in fiscal and monetary matters. Short term, there is a bearish outlook for China. Long term, these eight factors and more suggest a country with a bullish outlook. As a result, investors should look at the dip in prices as an opportunity to buy at a discount for greater returns in the future. At the time of publication, the author held no positions in any of the stocks mentioned. This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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