Spooked by S-chips? There are other ways to gain exposure to the fast-growing mainland market
By Goh Eng Yeow 06 December 2009
Spotting a promising firm and investing in it early can be akin to winning a licence to print money.
Take legendary investor Warren Buffett. He has held for decades the shares of companies he invested in, profiting hugely as the businesses grew from strength to strength. Yet, many an investor would say he is more the exception than the rule.
For more than a few, stocks have provided a dismal experience. One trader observed wryly that if an investor had put $10,000 into the benchmark Straits Times Index on Jan 3, 2000, the return on his capital, excluding any dividend payout, would have been just 0.7 per cent a year.
Given the risks of putting money to work in the stock market, the investor would have been better off ploughing it into a Singapore Government bond or simply leaving it in a fixed deposit in a bank.
Still, more ordinary investors could have benefited from Mr. Buffett’s ‘buy and hold’ strategy than cynics would have us believe.
Take an old businessman friend of mine. After the Pan-Electric Industries scandal in 1985 that rocked the market, he bought 1,000 OCBC Bank shares at $4 apiece and has held on to them. As OCBC prospered from Singapore’s phenomenal economic growth over the past two decades, he more than recouped his investment costs just from the dividends.
He is also sitting on a gold mine. He now owns 5,427 shares worth $46,000, after the many bonus and rights issues made by the bank over the years. In addition, OCBC pays him more than $1,500 in dividends a year, giving him an annual return of 38 per cent on his original investment outlay.
The region is now enjoying the kind of strong growth that transformed Singapore, which gives investors ample opportunity to make wagers on companies that have the potential to see an explosion in value similar to that reaped by OCBC in the past 20 years. One market in particular stands out: China. By some estimates, it is likely to overtake the United States as the world’s largest economy in 10 years.
Some of its companies are already world-beaters. Oil giant PetroChina was the planet’s most valuable firm for a brief period last year, while the Industrial and Commercial Bank of China (ICBC) is the world’s largest bank by market value.
As the earning power of China’s vast population improves, the emergence of a huge consumer economy there could open up all sorts of opportunities.
If Singapore’s experience is anything to go by, there will be an explosion in the sale of everything from life insurance to health care. This should give investors a rare chance to buy into firms with the same money-making potential as OCBC.
How should they play the China card then?
Given the pall cast over S-chips, or China firms listed locally, by some black sheep, investors might prefer to give them a miss altogether.
However, there are other ways to gain exposure to the fast-growing mainland market. With the proliferation of online trading, investors literally have the world’s stock markets at their fingertips.
While the strategy outlined below might not be suitable for all investors, it offers a starting point for those eyeing China’s growth in the next decade:
• You could buy into an exchange traded fund (ETF) with China exposure. For the risk-averse, the best bet would probably be an ETF that tracks a widely watched China stock index.
One strong bet would be the Hong Kong-listed Tracker Fund, which tracks the Hang Seng Index, whose constituent stocks now include mainland biggies such as PetroChina and ICBC.
There are also some China-based ETFs listed on the Singapore Exchange. These include the recently listed United SSE 50 China ETF, as well as the Lyxor China H shares ETF and Lyxor Hang Seng, which are traded in US dollars.
• You could buy the H shares of mainland firms listed in Hong Kong. In the past few years, giant China firms have rushed to list there, so you can easily gain exposure to sectors that catch your fancy.
For example, you could tap China’s rapidly growing insurance market by buying shares in China Life or Ping An Insurance.
• You could buy into Singapore blue chips with a big China presence. Even if you prefer to keep your money here, you can still cash in on the China growth story by buying into such stocks.
Among them are the stocks of local lenders such as OCBC and DBS Bank, as well as large property developers such as CapitaLand and Fraser & Neave, which are rapidly expanding their footprint in China.
Whatever strategy you plan to adopt with your China investments, you must remember that share prices never move up in a straight line.
To reap the full benefits, you must be prepared to ride out any turbulence that could rock China from time to time as it forges ahead.
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Playing the China card
Spooked by S-chips? There are other ways to gain exposure to the fast-growing mainland market
By Goh Eng Yeow
06 December 2009
Spotting a promising firm and investing in it early can be akin to winning a licence to print money.
Take legendary investor Warren Buffett. He has held for decades the shares of companies he invested in, profiting hugely as the businesses grew from strength to strength. Yet, many an investor would say he is more the exception than the rule.
For more than a few, stocks have provided a dismal experience. One trader observed wryly that if an investor had put $10,000 into the benchmark Straits Times Index on Jan 3, 2000, the return on his capital, excluding any dividend payout, would have been just 0.7 per cent a year.
Given the risks of putting money to work in the stock market, the investor would have been better off ploughing it into a Singapore Government bond or simply leaving it in a fixed deposit in a bank.
Still, more ordinary investors could have benefited from Mr. Buffett’s ‘buy and hold’ strategy than cynics would have us believe.
Take an old businessman friend of mine. After the Pan-Electric Industries scandal in 1985 that rocked the market, he bought 1,000 OCBC Bank shares at $4 apiece and has held on to them. As OCBC prospered from Singapore’s phenomenal economic growth over the past two decades, he more than recouped his investment costs just from the dividends.
He is also sitting on a gold mine. He now owns 5,427 shares worth $46,000, after the many bonus and rights issues made by the bank over the years. In addition, OCBC pays him more than $1,500 in dividends a year, giving him an annual return of 38 per cent on his original investment outlay.
The region is now enjoying the kind of strong growth that transformed Singapore, which gives investors ample opportunity to make wagers on companies that have the potential to see an explosion in value similar to that reaped by OCBC in the past 20 years. One market in particular stands out: China. By some estimates, it is likely to overtake the United States as the world’s largest economy in 10 years.
Some of its companies are already world-beaters. Oil giant PetroChina was the planet’s most valuable firm for a brief period last year, while the Industrial and Commercial Bank of China (ICBC) is the world’s largest bank by market value.
As the earning power of China’s vast population improves, the emergence of a huge consumer economy there could open up all sorts of opportunities.
If Singapore’s experience is anything to go by, there will be an explosion in the sale of everything from life insurance to health care. This should give investors a rare chance to buy into firms with the same money-making potential as OCBC.
How should they play the China card then?
Given the pall cast over S-chips, or China firms listed locally, by some black sheep, investors might prefer to give them a miss altogether.
However, there are other ways to gain exposure to the fast-growing mainland market. With the proliferation of online trading, investors literally have the world’s stock markets at their fingertips.
While the strategy outlined below might not be suitable for all investors, it offers a starting point for those eyeing China’s growth in the next decade:
• You could buy into an exchange traded fund (ETF) with China exposure. For the risk-averse, the best bet would probably be an ETF that tracks a widely watched China stock index.
One strong bet would be the Hong Kong-listed Tracker Fund, which tracks the Hang Seng Index, whose constituent stocks now include mainland biggies such as PetroChina and ICBC.
There are also some China-based ETFs listed on the Singapore Exchange. These include the recently listed United SSE 50 China ETF, as well as the Lyxor China H shares ETF and Lyxor Hang Seng, which are traded in US dollars.
• You could buy the H shares of mainland firms listed in Hong Kong. In the past few years, giant China firms have rushed to list there, so you can easily gain exposure to sectors that catch your fancy.
For example, you could tap China’s rapidly growing insurance market by buying shares in China Life or Ping An Insurance.
• You could buy into Singapore blue chips with a big China presence. Even if you prefer to keep your money here, you can still cash in on the China growth story by buying into such stocks.
Among them are the stocks of local lenders such as OCBC and DBS Bank, as well as large property developers such as CapitaLand and Fraser & Neave, which are rapidly expanding their footprint in China.
Whatever strategy you plan to adopt with your China investments, you must remember that share prices never move up in a straight line.
To reap the full benefits, you must be prepared to ride out any turbulence that could rock China from time to time as it forges ahead.
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