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China Week: Taking A Hard Look At The Chinese Stock Market

18 August 2008 No Comment

This week at 20s Money, we are analyzing China and ways to make money by investing in China. Each day we will look at a different aspect of investing in China. Today, we will look at the overall Chinese stock market.

Economic Growth

Most of you probably know that China has been growing fast. Real fast. Our question to ask as we look to make money in the future is what will China’s growth look like in the next 10 years, 20 years and more? Well, without diving into too much analysis yet, it is a pretty safe assumption to state that China will grow faster than the United States in the foreseeable future.

For one, the U.S. has hit a “matured growth” stage where we are so big that respectable growth is still small when looked at as a percentage. Also worrisome for U.S. investors is the theory that much of our growth in the recent years has been due to increasingly higher levels of debt needed to fuel growth in this economy. With the current “de-leveraging” process taking place in the U.S. financial system, it is necessary to ask what and how will the U.S. economy use to fuel future growth?

China’s growth, however, has legs to run on. The country has been growing at a torrid pace for years, but the U.S. still had over double the GDP of China in 2007. With the huge population and pro-growth focus of China, I like for these numbers to close. Also, good news for investors is that it seems the Chinese government has tamed inflation to an extent.

The Present Buying Opportunity

Since the peak in the Chinese stock market in the fall of 2007, the Shanghai index is down approx. 60%. In 2007, many investors were calling the Chinese stock market a bubble. With the correction at 60%, it looks to be a good time to buy for the long term investor.

To invest in China means to tolerate some serious volatility, but over the long term, the Chinese market has serious potential. If you have a stomach that can handle some large swings up and down, you should strongly consider putting money into China.

Ways To Invest In The Market

Since researching and picking individual Chinese companies is tough and requires tons of work, I am sticking to the overall Chinese market. I accomplish this investment through the iShares China 25 ETF (FXI). My goal is to gain exposure to the long term growth story of the Chinese economy and the overall Chinese stock market. This ETF grants me this exposure.

Last Friday, I started a position in FXI buying shares at $41.12. To see all of my stock moves and overall portfolio, you can check me out on Covestor.

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