Investing in the China50: What to Consider
The China50, also known as the FTSE China A50 Index, is located in China and is comprised of companies from the Shanghai and Shenzhen Stock Exchanges. It includes prominent Chinese companies such as the Bank of China, CITIC Securities and CRRC. The China A50 Index is operated by the British FTSE group.
WHO SHOULD INCLUDE THE CHINA50 IN THEIR PORTFOLIOS?
Adventure seekers: Investors searching for non-traditional trading markets and those who wish to diversify their portfolio. Some investment gurus argue that investing in non-western markets can increase profit potential.
Exotic traders: Anyone who is looking to focus primarily on eastern markets can consider the China50 as an anchor. But it is also prudent not to ignore the other Asian markets, as many offer a trader profit potential.
Index traders: Many traders who invest a significant amount of time and resources in tracking and studying indices, should not ignore the China50. It is not that this index is considered better than the Dow or the NASDAQ, but it should not be ignored.
WHAT DRIVES THE CHINA50’S PRICE?
Trade Wars: China has no qualms about entering trade wars with the United States and other countries in the west. It has also shown some aggression towards its smaller neighbors in Asia. This is not necessarily a negative issue for traders, as it can provide some financial opportunities. But it is crucial when investing in the Chinese economy, to track its relations with other countries.
Demographics. For many years China has managed to elevate its economic status with a cheap, young and ambitious workforce. This has allowed China to become the biggest manufacturer in the world. Especially cheap, low-tech products that are in great demand in every country. However, times are changing. The workforce is getting older, more expensive and less tolerant of long working hours. It is prudent to track these changes in sentiment, as they could have dire ramifications on the health of the Chinese economy.
CHINA50 INDEX: WHAT YOU NEED TO KNOW
First-time investors, and even some seasoned pros, may not fully understand some of the differences between the Chinese market and more traditional western markets. While many of the investment strategies remain the same, there are several key recommendations that investors should adhere to:
Be prepared for the unknown. There is far less transparency in China than in other countries, and radical changes can happen quickly. While other governments have also been accused of knee jerk reactions in the past, they have checks and balances that prevent a rogue government from forcing their agenda without some debate. China does not have such mechanisms.
Reports are not that reliable. For many investors, financial reports are their life line to understanding the direction of the markets and how to adjust their trading strategy. China has been accused of falsifying reports in the past. Because the Chinese government is less transparent, some investors and financial experts are suspicious of the numbers. Even worse, this suspicion has put more trust in foreign analysts’ predictions of the Chinese economy, which due to the lack of information, is often speculative at best.
Look at America. US presidents and their administrations have had differing opinions about how to interact with China. Such difference can have a profound impact on the economic state of both countries. Some previous US presidents have been more open and tolerant of China, which has caused the Chinese economy to prosper. However, other presidents did not share this sentiment, causing the Chinese economy to lose some of its momentum.
CONCLUSION: EXCITING AND UNKNOWN
Opinions vary on the Chinese economy. Despite some of the misgivings explained thus far, there is also opportunity to be found. Investors should not shy away due to red flags. The risks, rewards and opportunities in China are arguably the same as in any other country or market. Don’t think that the American or European markets are more beneficial due to perceived stability. Those who are willing to understand how the Chinese economy works, have as much chance of winning or losing, as those who prefer the ‘safer’ markets of the west.
*This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation.
*Past performance is not an indication of future results. All trading carries risk. Only risk capital you’re prepared to lose.