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How much we don't know about China

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mad_money1 April 6, 2010 (Chinavestor) There are a couple of very important facts about China that investors in the U.S. just don't take seriously. "I certainly don't want to own Chinese stocks" says Jim Cramer in a recent interview posted on TheSteet.com: Creamer - How to invest in China.

Why not?  As a China stock analyst myself I don't buy the "Chinese cook books" cliche. Chinese companies that are listed on U.S. exchanges have to comply with rules set by these equity markets - else they get booted. To say that corporate governance for China Mobile (NYSE:CHL), the largest mobile carrier in the world with 520 plus million subscribers, is not considered vanguard is just simply absurd. Sure investors can say that 500 million subscribers is no big deal in a country that has over 1.3 billion inhabitants.

 

But I don't think many investors know that General Motors (NYSE:GM) has been selling more cars in China than in the U.S. for three months in a row in 2010. All this in a year when sales rebounded in the U.S. led by Ford's 40% sales surge. By the way, the Chinese auto market was larger than the U.S. in 2009 and is expected to remain that way for 2010 and beyond. Or how about this? China was the largest manufacturer of autos before 2009... Earnings for SAIC Motor (SHA:600104), the largest car manufacturer in China, grew tenfold in 2009.

Another fact is that Goldman Sachs (NYSE:GS) reported a record  $13.385 billion net profit for 2009. But I bet many of you missed out on a breathtaking $18.954 billion net profit for Industrial and Commercial Bank of China (HGK:1398), surpassing that of GS. And it wasn't a coincidence, ICBC has been more profitable than Goldman in the last three years.

Another fact is that China's second largest financial institution, Bank of China (HKG:3988) has been more profitable then Wells Fargo (NYSE:WFC), the most profitable American commercial bank, in the last three years.

Newsletter_April2010_3

 

Sure, there are no Chinese financial institutions listed on American exchanges, nevertheless the iShares FTSE/Xinhua 25 Index (NYSE:FXI) is a financial heavy weight that can be a proxy for that segment of the market. The right way to invest in China - iShares FTSE/Xinhua 25 Index (NYSE:FXI).


Portfolio allocation of FXI as of January 1, 2010

FXI_allocation


Chinese energy, telecom, technology, and internet companies certainly offer value for the intelligent investor. Missing out on China is a big mistake. Don't be one of them!



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