Since bottoming at the end of October, the MSCI Emerging Market Index (MXEA) and MSCI Asia Ex-Japan ...
07/01/2008 12:00 am EST
This book was a tremendous surprise. Jaded in the last few years from all of the hype surrounding China investments, my expectations—fortunately—were greatly surpassed.
Hsu, a money manager and editor of investment newsletters China Strategy and Asia Edge, addressed a niche that most money managers, analysts, and investors fail to recognize as the core ingredient to investing success in China—the mores and values of its people.
The author emphasizes the importance of Chinese history in understanding the evolution of its widely-diverse economies and markets. He takes readers through the development of each of China’s most important regions, and points out how their divergent values influence their products and services and create the foundation of very different forms of consumerism.
Hsu thinks that most money managers are missing the boat with China, focusing only on companies in Beijing and Shanghai—which while extremely influential and important—represent just 35 million of the 1.3 billion population of China. He points out that China’s second tier cities are made up of some two dozen cities that are the size of Chicago—or even larger. And he believes that’s where the opportunities lie.
From the more government-influenced and wealth-flaunters in Beijing, the commerce-driven, technology-hip in Shanghai, the more daring Northern Chinese, the sophisticated and affluent Easterners, the young and prosperous Southerners, to the migrant workers in Central China, Hsu does a thorough job of introducing the varied differences in each region. With this knowledge, investors can see that lumping all of China into one vast bowl of investment theory and strategy is not the most optimal approach to this rapidly-growing power.
Hsu spends quite a bit of time warning investors to stay away from the companies that are the toast of Wall Street. These, by and large, are the SOE’s (state-operated enterprises), the majority of which are poorly run companies, viable only through hefty government support, and make decidedly unattractive investments. Although, he does point out a few exceptions that have managed to rise above bureaucratic ineffectiveness.
Instead, he favors individual companies headed by China’s growing ranks of successful entrepreneurs, as well as foreign companies that are making their fortunes from the rampant consumer tide sweeping through China. Hsu offers plenty of examples of the how’s and why’s of these companies’ successes and goes into some detail explaining the parameters that he believes are the hallmarks of a promising investment.
Hsu also gives a comprehensive explanation for why he believes investors should avoid the mainland stock exchanges, and instead, head for the Hong Kong or US exchanges which offer ADRs.
But most importantly, the insight he presents into determining which products and services are truly the future of Chinese consumerism—and not just the hype that investors are inundated with daily—will give the reader a good introduction to a very complicated economy and society.
I found this unique view of China a fascinating read, and it has already changed my approach to investing in the country. I believe that readers will benefit from this gateway into the real China, which will hopefully lead to more profitable and less volatile investments in this region in the years ahead.
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