China has begun transitioning from an emerging market to a more established, slower paced, reputable enterprise, according to Destination Wealth Management. Under scrutiny for the size of its economy and the reliance on growth to increase the Gross Domestic Product (GDP), the Chinese market will continue to grow, but not at the brisk rate as in recent years notes Bloomberg. There are several ways to tweak your investment decisions within the Chinese marketplace in order to prepare for the changes to come.
According to the World Economic Outlook report release by IMF, because of the transition period China is currently going through, it can also temporarily reduce growth in several other emerging market economies as well. The transition from an emerging to a more established marketplace from an emerging market is not always a safer option for your investments. Diversification in a country’s marketplace is often met with volatility and uncertainty. As transitioning occurs, it is likely best not to place all of your investment “eggs” in China’s one proverbial “basket.” That said, you should not totally abandon your position in China because emerging to establish markets do tend to ebb and flow. Reducing, but not abandoning your position in the Chinese marketplace will ensure you are ready to play, regardless of what happens.
When transitioning marketplace’s ebb and flow, it has been hard for businesses to prepare for what could be a whirlwind in regards to Chinese investments. CNBC reported that volatile markets can swing by as much as double digits higher or lower in a matter of days. Investors should focus on diversifying their portfolio so that not every investment is of such a high risk making it easier for them to see a positive return on their investment. Destination Wealth Management notes that it is essential to invest in internal consumption assets in China, instead of just exports, because the nation is becoming more established.
“China is a market that was emerging because they were focusing on exports. Their economy now has shifted to become more balanced, which means they are creating more internally consumed items. One of the enemies of internal consumption is the lack of affordable housing, which is why China is trying to slow down speculation in the real estate market. Shanghai and Beijing are some the most expensive places to live because of a ramp up in speculation,” stated a representative from Destination Wealth Management
Recently, the Chinese government has focused more on internal consumable items and this is a good action plan for your investments as well. By moving away from exports, traditionally where emerging markets make their names, investing in internal consumables is considered a safe harbor option for equity investors during a time of a market slowdown, such as that in China at present reported Bloomberg.
“China has put fiscal controls in place to slow this growth with some success, but not overwhelming success. They continue to try and balance an export policy with an internal consumption policy in order to capture the increased wages into their economy because their wages have risen significantly, especially for skilled positions,” continued a representative from Destination Wealth Management.
Real estate prices in China have skyrocketed, creating a drain on the Chinese economy, reminiscent of the housing market bust of late in the U.S. economy. Chinese families have placed their savings into their homes. At current CNBC reports that the combination of soaring prices and rising down payments mean that even if prices were cut in half, only five percent (5%) of homes would be worth less than the remaining balances on their mortgages. However, Chinese families have very little diversification into stocks, bonds and other assets with 66% of their assets in their homes alone according to Bloomberg. Falling real estate prices will lead to a decline in home values and Chinese spending, which could hinder investment strategies.
Companies like Apple, General Motors, and Johnson Air Controls are presently looking to benefit from an expansion of their Chinese presence, which could correlate to a turn in the US stock market, should investors decide to move away from China and reinvest their interests in established American companies.
It is essential that investors possess a great deal of patience as well as remain cautious when it comes to deciding which investment strategies will work best. Bloomberg reported that most investors are beginning to focus their investment strategies on future trends that will serve them well and eventually turn into a profit. Destination Wealth Management notes that investing on internally consumable items will become more profitable than exports alone.