Here's reality: Hundreds of hotshot money managers and
analysts convened at the Marriott Marquis in New York last
fall to attend J.P. Morgan's annual Asia Pacific and Emerging
Markets Equity Conference. My guarantee to you is that they
weren't there because they're scared of investing in
emerging-markets stocks.
But you very well might be ... and I can't necessarily
blame you.
Some very scary numbers
China, India, Indonesia, Brazil ... what do these
emerging markets have in common? They were all absolutely
crushed last year. China was underwater to the tune of 60%,
Indonesia and India 50%, and Brazil 40%.
It's been a tough and volatile year for emerging-markets
investors, and those who naively came to believe (thanks to
the 2003 to 2007 period) that emerging-markets investing was
all about outsized gains are scurrying away with their tails
between their legs.
This, however, is precisely the wrong time for that kind
of reaction.
Take China, for example
The first session at the closed-door conference came
courtesy of famed author, investor, and Princeton economist
Burton Malkiel. His presentation, titled "Investment
Strategies for the China Century," can be summarized as
follows:
dangerously underexposed.
The recent decline in China stock valuations, together
with the magnitude and duration of China's potential
growth, makes today an "unprecedented investment
opportunity."
Those are his words, not mine, though I do agree. The
question, of course, is how does the individual American
investor take advantage of this unprecedented
opportunity?
Your four options
If you're an American investor looking for maximum
returns and minimum hassle, then you have four ways to buy
China:
iShares FTSE/Xinhua China 25 (NYSE:
FXI).
Buy an actively managed mutual fund -- such as
Matthews China -- that is concentrated in
China.
Buy multinational corporations such as
Wal-Mart (NYSE: WMT),
Toyota (NYSE: TM), and even
Joy Global (Nasdaq: JOYG) that are
expanding in China and that have made doing business in
China a significant part of their growth strategy.
Buy individual Chinese stocks such as
Zhongpin (Nasdaq: HOGS) and
China Sky One Medical (Nasdaq: CSKI) that
trade on U.S. exchanges.
Each one of these approaches comes with its own set of
pluses and minuses. Though the index fund is low-cost, for
example, it will condemn your portfolio to holding nothing
but enormous, bureaucratic, state-owned enterprises such as
China Telecom . The actively managed fund
might make more discerning stock picks, but it's also
expensive -- and Malkiel's research showed that most actively
managed China funds substantially underperform the index.
Can you pick your own stocks?
That leaves two options: Picking your own
multinationals or picking your own Chinese stocks. In fact,
Malkiel recommends you do both.
Of course, you'll probably feel more comfortable
researching U.S. stocks that have a CEO who speaks your
language (literally), that sell products familiar to you, and
that release financials you're more likely to trust. Continued... |