International Investing

Every American or non Chinese investor knows and understands that China is growing incredibly fast.

Savvy investors understandably want to know what are the best ways to invest in China or even how to invest in China.

We’re in the 3rd quarter of 2011 and looking forward to 2012.  I have some answers that are very valuable and may actually surprise you about the best ways to go about this.

I should mention that I’m a westerner who has been living in Shanghai for the past 9 years.  I’ve been all over the country and I read and speak Chinese.  I feel that I know what is going on here a lot more than the people on wall street.  It’s not because I’m on an ego trip.  I’m actually living here and dealing with this country everyday.  As an investor, I’m going to be as objective as I can possibly be.

Many of the “exciting” Chinese stocks trade in New York and they are shockingly overvalued.  Here is just one example I wrote about of an overpriced Chinese stock listed in New York.  I’m not a classic “value investor” but I know a bubble when I see one.  Many Chinese internet stocks are losing money and trading at about 4 times the P/E of Apple.  They are insanely overpriced because so many investors think that China and the internet equals an amazing investment.

There is a herd mentality following this simple logic and it’s very misguided.  It’s true that China is growing fast and will continue to do so as the growth spreads west.  Cities you’ve never heard of are booming like you wouldn’t believe.  The growth is real and the internet is really taking off.

The problem is that too many people already know about this and speculators have bought into this hook line and sinker.

If you want to make money in China while minimizing downside risk, buy a company that does an incredible amount of business in China and has a strong brand image.  The Chinese consumer loves top brands more than anyone else I’ve ever seen.  I often read in the western news media that China has so much fake stuff.  It’s true that there is a lot of fakes here but what you need to understand about this culture is that they love the real thing.  Many people will spend 2 months salary to get a real LV bag instead of a fake one that is similar.  The incredibly strong luxury market in China is a paradox to the people who don’t understand how a culture can spend so much money on real brands even when they don’t have a lot of money and there are fakes they can buy.

“Face” is a big part of it but so is quality.  It’s not easy to copy well made things and the Chinese are probably the best in the world at spotting fake stuff from 10 meters away.  It’s embarrassing to be seen with cheap fake stuff here.  The fakes actually expose the real brand and create demand.

China is a proud nation but they actually like western goods like Apple and Starbucks more than their own stuff.  It looks cool to be international here.  I bet my life that this trend will continue.

Another reason to invest in American companies like Apple and Starbucks which are just so dominant here is that the Wall Street analysts really don’t know what’s going on here.  They have proven themselves time and time again to be just terrible at predicting sales figures in China.  Since these companies sell so much in China, a good Chinese quarter will almost certainly push up the share price up a lot because when the quarterly sales numbers come out ahead, the stock price jumps.  Apple and Starbucks are both poised for global and massive Chinese growth for 2012 and beyond.