The trade war between the United States and China is highlighting the biggest investing opportunity right in front of your nose.
At the Schwab Impact 2019 conference in San Diego, Calif., on Tuesday, representatives from fund manager Matthews Asia took the stage before several hundred people to discuss China trade and tariffs and the trillion-opportunity that awaits.
Jeffrey Kleintop, chief global investment strategist at Charles Schwab & Co. introduced the Mathews group, and told the audience to pay attention to a top line fact: China has moved to a consumer market from a manufacturing economy. That has huge implications, he said, noting Singles Day, a Chinese holiday November 11 that has become a shopping-day event. Chinese retail sales that day far outpace U.S. retail sales on Black Friday and CyberMonday combined, says USA Today.
Focusing on short-term trade disputes is missing the bright investment portrait that China is painting for itself.
Andy Rothman, an investment strategist for Matthews Asia who’s worked in China for decades, said, “If someone told me 30 years ago that I would be helping people to invest in China, I wouldn’t have believed them. When I first began working there, the phone system was so bad that we had to rely on a fleet of bicycle messengers. Now, China has the most sophisticated mobile communications system in the world.”
He urged advisors to develop a framework through which to think about China. Here’s why: China accounts for about one-third of global economic growth. That means whether or not you are directly invested in China, your portfolios will be impacted by its economy. “Do you have enough exposure to China for your clients?” Rothman asked.
The answer is likely no. Even though China is a major factor economically, it isn’t heavily weighted heavily among international index funds.
Utilizing the average global weighting across markets, China only garners between a 5% to 10% weighting. By example, China only accounts for about 5% of MSCI’s global index.
Meanwhile, David Dali, portfolio strategist at Matthews Asia, recommends allocating one-third of a growth portfolio to China alone. “We think Chinese equities are going to rerate higher,” he said. “Chinese equities make money. Chinese companies make money.” Moreover, he said, Chinese companies trade at 30% valuation discounts compared to U.S. companies.
Recent skepticism of China’s growth, according to Joyce Li, portfolio manager at Matthews Asia, can be attributed to population bias: analysts are mostly gauging growth in top cities, while second- and third-tier cities are where prosperity is booming. Li, who grew up in a Hong Kong satellite city, said she witnessed this first hand when she went back to visit her hometown in August. “We couldn’t get a restaurant reservation!” she noted.