Other Ways to Profit From China's Growth

Unless you've spent the last few years under a rock, you probably know that China's been a hot place to invest. This summer's upcoming Beijing Olympics have brought a spate of publicity (positive and negative) to the country, and in recent months, both The Economist and National Geographic have devoted full issues focusing on China. More enticingly, the country's yielded outstanding returns for savvy investors.

China's Hang Seng index gained 130% in 2006, and another 97% last year. Oil, steel, infrastructure, and commodity companies have been great ways to invest in China's torrid growth, with minimal difficulty. Many of them are large U.S. companies or big foreign firms that list American Depositary Receipts (ADRs) on U.S. exchanges.

Big ambitions
With an emerging middle class among its 1.3 billion citizens, China's growth is not fleeting. (It's also not bulletproof, of course; the Hang Seng is off 43% from its October 2007 high.) While that macro trend opens up many investment possibilities within China itself, there's another increasingly appealing way to invest in that growth: China's neighbors.

China's neighbors in Southeast Asia have emerged as opportunities themselves. Singapore, Vietnam, and Indonesia are a few of the countries that have big plans to help feed China's growth -- and grow their own economies in the process.

Singapore's well-developed economy and predominantly Chinese population have the country already well-positioned to benefit from growth in the region. And whether you label them as "emerging" or "frontier" markets, Indonesia and Vietnam are fast-developing economies, and the potential of opportunities in infrastructure and industry are greater there -- as are the risks.

The growth opportunities are huge. Vietnam currently doesn't produce enough steel to meet its own building needs, but by 2010, it plans to exceed that growing demand for steel as a net exporter. China is already Vietnam's largest trade partner for coal, and it's a potential customer for steel, too. Indonesia has been reforming its economy to increase investment outside of the oil and gas industry. The benefits have been tangible -- in 2007, the Indonesian economy grew at its fastest rate in 11 years. It probably won't surprise you to learn that China and Singapore are among Indonesia's main export partners.

One of the big talking points about investing in China is its huge population -- 1.3 billion strong. Vietnam and Indonesia don't have China's sheer size, but Indonesia's population is around 100 million more than Japan's. Vietnam's population is just about the size of Germany's -- and it's larger than South Korea's.

How you can get in
The number of companies in the region trading as ADRs on the major U.S. exchanges is limited. Really limited. According to The Bank of New York Mellon ADR website, there are exactly three from which to choose. The best-known of them is Global Gains recommendation Telkom Indonesia (NYSE: TLK  ) . Including companies with shares trading over the counter adds another 26 names to the list, for a grand total of 29. A closed-end fund such as the Indonesia Fund (AMEX: IF  ) is another option worth investigating.

Perhaps the easiest way to invest in the region's growth is through foreign companies already on the ground. For example, South Korea-based POSCO (NYSE: PKX  ) has looked to Vietnam as a growth driver, making substantial investments to develop steel mills there. Canon (NYSE: CAJ  ) is making printers in Vietnam, and sees its base in the country as a billion-dollar export opportunity. U.S. companies have a presence as well, including Jones Lang LaSalle (NYSE: JLL  ) in real estate services and Nike (NYSE: NKE  ) and Procter & Gamble (NYSE: PG  ) in consumer goods. These are some of the ways to benefit from growth in the region, and obviously, each option has a different level of risk.

Get a viewpoint from on the ground
While Vietnam and Indonesia have the opportunity to post the highest growth rates, don't overlook Singapore because of its smaller population or physical size. Singapore's economy is trade-focused and quite advanced, and the country's mix of Chinese, Malay, and Indian cultures makes it a natural fit to continue benefitting from growth in the region.

There's no better way to figure out what's going on in these countries than to see them with your own eyes. That's why advisor Bill Mann and our Global Gains team are in Asia right now -- to observe the opportunities in Vietnam, Indonesia, and Singapore for themselves. If you'd like to follow along as we visit companies there, as well as in Macau and China, sign up to receive our dispatches live from the field.

It's absolutely free -- to sign up, just submit your email address in the box below.

Nathan Parmelee is a senior analyst for Global Gains. He has no financial stake in any of the companies mentioned. POSCO is a Motley Fool Income Investor selection. Jones Lang LaSalle is a Motley Fool Hidden Gems selection. The Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (9)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 04, 2008, at 7:14 PM, steinbrock wrote:

    There is no better way to judge a market, company,or CEO, than to visit and have a conversation. Of course, they aren't going to open their books for you, but business people can judge by meeting face to face more than reading about it.

    I congratulate Bill Mann on visiting China. The food is pretty good too. I look forward to reading his reports and making some money.

  • Report this Comment On June 04, 2008, at 10:58 PM, none0such wrote:

    @steinbrock, of course your right but your advise didn't help Rupert Murdock from getting handled when he ventured to China to do business. He famously lost a bundle and I would say he is a pretty good example of a "business savvy" person.

  • Report this Comment On December 30, 2009, at 8:58 AM, cmm3 wrote:

    Indonesia is a great way to invest! IDX and IF are excellent sources of investment for Indonesia as there are few Indonesian ADRs. Of the ADRs available, few are poised for large growth as they are just too big. Take TLK for example. Great company, great profits but how large can they go? They're the AT&T of Indonesia. And yes, everybody needs a phone, but given the fact that the EAFE countries most people can afford a phone now there is little growth.

    You can visit this site that features investments in Indonesia to learn more about the opportunities abound: http://eafepro.com/content/indonesia-investments

    It is also possible to directly invest in Indonesia through an Indonesian brokerage firm: http://eafepro.com/content/investment-brokerages-indonesia

    The IDX has listed the Top 45 stocks like our S&P: http://eafepro.com/content/lq-45-and-its-criteria

    Another example of picking on Chinese growth as you point out is Taiwan. A company known for their semiconductor industry. Probably the best way to invest in Taiwan is through Taiwan's ETF because there are so many semiconductor companies all coming out with products at different times; it simply gives you the exposure you need. Their ETF is called EWT and is a good deal vis-a-vis the expense ratio.

    Malaysia is a country you unfortunately left out. Probably because it is hard to invest in such a country when living in America. However there is a Closed-end fund (CEF) of Malaysia and an ETF. They are listed here: http://eafepro.com/content/malaysia-investments

    Singapore and South Korea are EAFE (Europe, Australasia, Far East) countries not to be overlooked. Both offer great investments for the individual investor and have many ADRs as well as funds that follow them. When I refer to funds, I am referring to ETFs or CEFs (I do not recommend mutual funds in general, though there are some stellar Asian mutual funds, which is beyond the scope of this article). Check out these pages to learn about investments abound for Singapore and South Korea. You will find lots of commentary:

    Singapore: http://eafepro.com/content/singapore-investments

    South Korea: http://eafepro.com/content/south-korea-investments

    Thailand is another EAFE country worth looking at. It has political turmoil so is not for the faint of heart however it is poised to do great things in the 5 year outlook. There are no ADRs of Thailand that I know of (please correct me if I am wrong) but there is a CEF and ETF. EAFE Pro does analyze some of the companies listed off the US Exchanges: http://eafepro.com/content/thailand-investments

    Hong Kong: another country that is benefiting from China's current growth. Lots of Chinese countries are listed on the Hong Kong exchanges. Hong Kong has ETFs and also ADRs to invest in! Time to invest in this EAFE country! http://eafepro.com/content/hong-kong-investments

    Europe is a great EAFE area to invest in. European companies are growing and there are many companies that are small caps that are promising that are listed on the US exchanges. And if they are not, it is much easier to invest in European exchanges than some of the Australasia exchanges! Take a look at what is available to grow your portfolio! http://eafepro.com/content/investments-europe

    Finally, Australia! What a country! It is benefiting largely from China's current growth. Their ETF is returning huge numbers. BHP is one of the best companies in the world to invest in (and is a large position in EWA, the Australian Index ETF)! Australia should continue to do well as one of the top EAFE countries. http://eafepro.com/content/australia-investments

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