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Why not to invest in China this New Year

lion danceHappy Chinese New Year! On Saturday we leave behind Year of the Monkey and welcome in the Year of the Cock (or should that be the Donald?). Jokes aside, be sure that you’ve bought a new outfit, cleaned the house, eat fish for dinner and never, ever cut your noodles – you are shortening your life!

It’s become almost as traditional as the lion dance (see photo) to publish articles about investing in China at this time of year. And I’m (sort of) going to break with that tradition and say – no, don’t buy Chinese shares in 2017!

The Year of the Cock is generally a less auspicious year that than of the Monkey, although I wouldn’t be investing my money on reasoning like that. More important is that China is up to its ears in debt and, worse, that it could be facing a trade war with America.

Trump is more than capable of putting further import taxes on Chinese goods. Also, the US dollar looks like it will strengthen under his crazy plans to cut tax AND rebuild roads (and walls). This may mean better returns on American investments, so why would you risk your money in China when you can get a decent rate from a developed market? If enough people switch into the US, Chinese shares prices (a rollercoaster at the best of times) will take a tumble.

Even the experts this time are playing it cool. Many fund managers have pulled back from China or have committed the tiniest amount. One view I heard is that there is no reason for the majority of investors to place their money in a China-only gamble.

On the other hand, China is the world’s second biggest economy and we’d be foolish to ignore it completely. If you are really determined to invest, the best approach is probably to put some cash into a fund which invests across Asia, spreading the risk between countries. Another way is to go into a global fund which can pick out the decent shares in China, generally internet stocks such as Tencent and Alibaba, while avoiding the duds.

Lastly, you could stay on home ground and try to benefit from the success of Western firms selling into China. Unilever, for example, has done well flogging baby goods and sanitary products to the newly enriched middle classes. And having lived in Hong Kong for long periods of time, I can say with confidence that the average Chinese person is absolutely mad for designer labels and luxury goods: Louis Vuitton and Jaguar Land Rover have successfully ridden this trend.

As for me, I’ll be skipping China this year and maybe looking at India instead, which seems to have better prospects. So kung hei fat choy for 2017, as they say: prosperity to you!

Check out our beginner's guide to investing in funds here. Or, if you're an experienced investor looking for ideas, here's some expert recommendations:

a. Bestinvest picks Scottish Mortgage investment trust: global fund with some Chinese shares.
b. Hargreaves Lansdown picks Stewart Investors Asia Pacific Leaders: pan-Asia shares.

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Wednesday, 19 December 2018