How to tame your portfolio dragon: China

Australian investors are big suppoters of the China growth story.

http://www.theaustralian.com.au/bus...lio-dragon-china/story-e6frgacb-1225854673743




Johny.

 

Hi,

If 11% of an Australian index is automatically China exposure, are investors replicating exposure with an emerging market fund. Is anyone concerned about a China bubble?





Johny.

 

Beware $1 Trillion Lying Under Chinese Mattress: William Pesek - Bloomberg

 

I feel guilty now, for taking from the working chinese poor.



J.

 

Bubbles would seem to be an inevitable part of human nature. So I don't think "concerned" is the word I'd use, simply because the medium to long term outlook for China is far more positive.

Advisors often talk about taking a long term perspective when it comes to investing, ie 7+ years. Now I don't think this sort of attitude should offset doing due diligence, but I'd happily argue the case that even with a "long term perspective" you would not have made reasonable returns in the US over the last 10 years, plus I expect the next 5 - 10 years in the US (or pretty much anywhere else in the developed world) to be less than fruitful.

Yet China on the other hand, even with a bubble bursting between now and 2017 you would likely still be in a substantially better position than today. Even bad quarters of growth for China, are the sort of growth rates that the US is dreaming of at the moment, and this reality isn't likely to change, barring major civil or international war.

So I guess all I'm saying is that, it doesn't really matter if their is a bubble in some sectors of the Chinese growth story, the longer term trend still has a long way to run. Plus the Chinese market is already down 20%+ from the recovery highs it reached last year and still 55% off the highs it reached before the crash and there are just as many unpopped bubbles in the developed markets.

I wouldn't worry about them too much, people have a way of looking out for themselves, and the last I heard a lot of factory workers had managed to negotiate for double figure annual wage increases... So I expect that we will be seeing a much larger Chinese middle class over the next 5 - 10 years.

All businessmen understand that without workers, there are no profits.