China stocks headed higher in 2010
Several major trends will propel China stocks forward in the New Year.
By Robert Hsu, InvestorPlace.com
I recently read an article in Time magazine calling the 2000s the "The Decade from Hell." For investors who kept their money on U.S. soil, this moniker actually fits quite well.
If you bought and held an S&P 500 Index fund from 2000 to present, you lost approximately 20% of your principal.
But what if you would have put your money to work in China stocks?
Your results would likely vary depending on the fund you chose, but it's safe to say that if you would have bought a basic China index fund at the beginning of the century and held it through today, you would likely have a gain somewhere north of 100%.
This kind of real portfolio growth can only be garnered by investing where the real growth is taking place -- and the real growth is taking place in China. In 2010, I see several major trends propelling China stocks forward.
See the complete list of Top China Trends to Profit From in 2010 here.
China Trend # 1 – Expect more growth in China's second-tier cities
China's next phase of economic growth will be driven by domestic demand rather than exports -- and the majority of this momentum will be driven by second-, third- and fourth-tier cities. When you consider that there are 170 cities in China with population of more than one million but only four of these cities -- Shanghai, Beijing, Guangzhou and Shenzhen -- are considered first tier in both size and per capita GDP, it's easy to see why China's economic growth next year will be driven by the other 166 cities.
Many of these cities are located in central China, and actually posted GDP growth of 10% or more in the first half of the year due to robust domestic demand. And we can thank China's big stimulus package for this growth, given that one of its main goals is to better connect Chinese coastal cities and these second-tier cities with faster trains and better highways.
This infrastructure build-out is just getting under way, so you can bet that there will be a lot more growth from companies building out these second-tier cities in 2010.
China Trend #2 – Expect the Chinese Yuan to grow stronger
Chinese real estate and rent prices have surged higher in 2009, as Chinese banks increased the country's money supply by nearly 30%. As you might have guessed, this is causing inflation pressure to build up in China, and the Chinese government is likely to start tightening bank lending. As a result, we will likely see the Chinese yuan appreciate in 2010, which isn't necessarily a bad thing for Chinese companies, as an appreciation in the yuan will boost domestic consumption since Chinese consumers will have more buying power with their currency. This means you will want to invest in Chinese companies that cater specifically to this strong domestic consumer demand.
China Trend #3 -- Real estate continues to be strong
In China, real estate is a primary investment vehicle, and a store of value. So, property transactions and value move in direct correlation with the aggregate amount of wealth created. As a result, high-end real estate surged in 2009. But I now expect these prices to consolidate in first-tier cities like Beijing and Shanghai, while at the same time, growth shifts to second-tier cities that are home to more reasonable property prices.
Just consider that less than 3% of China's total population lives in first-tier cities, while 40% of the country's population lives in second-, third- and fourth-tier cities. So, we should see further appreciation in central Chinese cities, which will create big investment opportunities in companies in that cater to the Chinese real estate market in 2010.
Get details on three more China trends -- and the stocks best-positioned to take advantage of all six trends -- here.
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