Portfolio Ailing? Take a Peek at Asian Markets.

By Chris Birk on 10 November 2010 3 comments
Photo: Nikada

Has your portfolio taken a pounding during the last 18 months? It might be time to consider opportunities a little further from home.

American investors are accustomed to the Dow, the S&P, and NASDAQ. But what about the Shanghai Stock Exchange, the Hong Kong Stock Exchange, or the Shenzhen Stock Exchange? China, after all, is one of the few large-scale economies in the world that is growing. It's poised for sustained and considerable growth given sheer demographics (a population of 1.4 billion) coupled with the continued emergence of a significant middle class. For example, the Chinese new car market is now bigger than the U.S. market, and China also controls 98% of the markets for rare earth minerals. In short, China is the number two economy in the world and will continue to dominate global trading.

So if you haven't been paying attention to the Asian stock markets, you could be missing out on a vital tool for making money. But be prepared to drink some coffee and stay up late, because these stock markets operate on a completely different schedule, and you have to be ready to strike — because if you snooze, you may lose, and lose big.

We know that currency markets run 24/7, and that can be a dizzying pursuit. Standard stock exchanges give you a little more room to relax (but not much). Fortunately for Americans interested in investing in Chinese stock markets, the China stock exchanges have fixed hours — just not the same fixed hours, of course, as the New York Stock Exchange. If you want to be a Shanghai market watcher, be prepared to stay awake late into the night and early morning. The Shanghai Stock Exchange runs from Monday through Friday, with 19 holidays per year. The day starts at 9:15 a.m. (9:15 p.m. in New York) with centralized competitive pricing for just 10 minutes, then bidding goes from 9:30 a.m. to 11:30 a.m. (9:30 p.m. to 11:30 p.m. in New York). You can take a break and sleep until 3:00 a.m., when a second session runs for two hours.

But hold on — it turns out you can't easily invest in any Chinese stock market. Investment directly into Chinese equities is not possible for foreigners, but folks outside the Chinese mainland can invest in Chinese companies listed in the U.S. and in Hong Kong. Language barriers are also significant, and accounting standards are different, so you need to have real research. Fortunately, there are organizations like AERI — the Asian Equity Research Institute — to help break down the Asian markets, give insight into the banking sector, and help foreigners understand investment opportunities in China and other countries in Asia.

For instance, a September 20, 2010, a newsletter from AERI offered investors this important news: "September 16, sources revealed to the China Securities Journal that China Securities Industry Association plans to inspect 5% to 10% of the securities exchange storefronts in each district of local securities industry association organizations during the year, and mainly to attack those decoying to open accounts with low commission, zero commission, and unfair competition, etc. The inspection result may affect the stock brokerages‚ category evaluation, and those that are serious will be suspended with business-related qualifications."

If you're a foreign investor who relies on one of these low-commission, zero-commission securities operations being targeted, you want to know — now — so you can secure your investments. Information like this from research firms is a key element to delving into foreign markets. Potential investors should also pay attention to the Hang Seng Index, which is the major index governing the Hong Kong stock market.

The barriers to entry can seem daunting to some investors, but the payoffs are potentially enormous.

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Darwins Money's picture

It's definitely advantageous for US investors to focus more on emerging markets. In the past, the thinking was having 100% US exposure was suitable, but that's not where the growth is any more. We're in a recovery that doesn't feel like one, growing at probably 2% GDP for the next several years while the emerging markets at are 5-8% GDP growth. Add to that the foreign exchange benefit from overseas outfits as helicopter Ben tanks the US Dollar and there are likely to be strong gains for years to come from Asia, South America, even Africa. Just bear in mind that these markets tend to be much more volatile than western markets.

Guest's picture

Replace Chinese with Japanese and you have pretty much the same media reporting from 20 years ago. How'd that work out again?

Chris Birk's picture

That's a legit question. But I would also point to some interesting numbers that came out toward the end of October in Bloomberg reporting. Financial firms have raised about $171 billion in Asia outside of Japan in the last four years. In the last year, the region has witnessed the five largest IPOs by financial companies.

It isn't all sunshine and unicorns, no doubt. But there's a combo of minimal debt and solid growth that's worth exploring further.