If you asked me how you could best invest in China, I would assume you are a convinced that a portion of your portfolio, or that of your clients’, should be invested in Chinese stocks.
Investing in Chinese stocks is somewhat like scheduling a trip to visit China. If you are a native of China and know the language, you could plan and book the entire trip for yourself. It would be your responsibility to find out where to go, where to eat, where to stay and so forth. Scheduling your own trip to China is similar to picking an individual Chinese stock. A Chinese citizen can purchase individual Chinese stocks but a non-Chinese citizen cannot purchase the actual stock. (See Craig Larsen’s blog on the FPA in China home page for how the Chinese are investing for themselves and their retirement.)
Continuing the metaphor, a second option would be for an investor to go on a large generic tour of China, which would be like buying an index fund. Sure, you can see China in a large tour group, but I don't want to see what everyone else sees all the time.
I prefer taking a trip to China where the guide is from the city I am visiting, and arranges visits to places that will widen my knowledge in my professional field. I am specifically talking about the trip I am currently on, sponsored by People to People Ambassador Programs and the Financial Planning Association. (See Advisorone.com’s FPA in China home page for more on the trip and additional blog posts from traveling FPA members.)
China is a very large country and the types of businesses in China range from A to Z. I believe an investor would be best suited if they purchased a top quality mutual fund that invests in Chinese companies. I do not believe the average financial planner has a betting chance at picking the right stock that will outperform a top-quality Chinese mutual fund while taking on the same risk of the fund.
As a financial planner and investment professional for over 30 years, I think a person that wants exposure to China should invest in an actively managed mutual fund that invests in Chinese stocks, or if your portfolio is large enough, invest your money in a managed Chinese stock portfolio.
It is not my place to tell you which mutual fund you should own, but I will tell you that I believe that you should have a portion of your investment portfolio invested in Chinese stocks. I strongly believe if you select a top quality mutual fund that purchases Chinese stock that in five years you will be happy with your decision.
I know when I get home from my People to People FPA trip, I will make sure that I purchase a highly rated mutual fund that buys Chinese stocks.
(See more blog postings by FPA members on the FPA in China trip, along with China-specific news and analysis on AdvisorOne.com.)