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How to Profit From China's Growth and Asia's Emerging Market Boom

Published 10/17/07 (Modified 3/8/11)
By MoneyBlueBook

My investment portfolio is up more than 40% so far this year. I accomplished this by taking advantage of the serious growth potential in the developing markets, primarily in Asia.

I think investors these days are much too risk adverse. Now if you are only only a few years away from retirement I understand why you would choose asset preservation first, but for those of you in your 20's or even 30's, why are you so afraid of losing money in the market? After all, stock markets have always cumulatively trended upwards historically given a long enough investment horizon. By overloading with safe conservative investments, you are greatly limiting your possible returns.

China Is Booming and Growing Rapidly

Due to its sheer size, massive population, and capitalistic ambitions, China will be the focus of the world's economic growth for the next few decades and is on track to develop into the world's next economic superpower. China's gross domestic product currently expands at more than 10% a year, compared to only 3% for the United States.

If you want to see your money grow to its greatest potential, investing in American or developed markets alone won't get you to that result. If you are content with steady growth, then stick with the usual S&P 500 type value funds. But if you desire growth and are willing to take on a reasonable amount of calculated risk, you really need to get on board the China train.

I jumped on board earlier this year and invested a large sum and proportion of my investment portfolio into Fidelity's Southeast Asia Fund (FSEAX). FSEAX's major holdings include solid companies like China Mobile, Samsung, PetroChina, HonHai Precision, and Taiwan Semiconductor. The companies represented are from rapidly growing markets like China, Hong Kong, Taiwan, Singapore, and South Korea. Take a look at FSEAX's 85% percentage growth compared to the S&P500's 13% within the last 12 months. The difference is astounding.

Bubble Talk

There is some speculation that a bubble is forming in China's financial markets and that the current growth rate cannot be sustained. That is always a possibility but I don't see it happening. Conditions are not as irrational or purely speculative as they were during prior recent crashes. With the 2008 Beijing Olympics coming next summer and the continued devaluation of the U.S. currency, I feel the pace for the emerging Asian markets can be sustained. Of course there probably will be a few major but healthy corrective pullbacks along the way.

My Picks and Watch List

Because buying foreign stocks can be rather difficult if you don't live in the target country, the best way to invest in China or in any of the other emerging Asian markets is to buy into a mutual fund or exchange traded fund. Here are a few you might want to take a look at. Remember, caveat emptor (let the buyer beware).

  1. Fidelity South East Asia Fund (FSEAX) - Mutual fund with expense ratio of 1.04%
  2. iShares MSCI Taiwan (EWT) - Exchange traded fund
  3. iShares MSCI South Korea (EWY) - Exchange traded fund
  4. iShares FTSE/Xinhua China 25 Index (FXI) - Exchange traded fund - Super risky but it has experienced the greatest surge.

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3 Responses to “How to Profit From China's Growth and Asia's Emerging Market Boom” 

  1. Evan says:

    Check out EEM also - similar trend

  2. dong says:

    As you know from my blog, I trimmed my holding of FXI. Of course it continued to go up after my trim. Can't say I disagree with your points, but I'm apprehensive of the current trajectory and the pace of rise. I am however to expand my holding of other Asian economies. I don't see any reversal of the dollar decline coming unless Amercan spending habits, and fiscal habits change substantialy.

  3. Raymond says:

    I love following all of these emerging market funds, but bubble concerns are always on my mind. Dong, take a look at Taiwan and S. Korea. I think those markets are undervalued compared to the other Asian markets.

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