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Point of View

Happy New Year (of the Dog)

By Mark Ward, Head of Trading

They say that every dog has its day, so it’s perhaps very apt that China will start to celebrate the Year of the Dog on 16th February. The seemingly unstoppable expansion of the Chinese economy, strengthening of Sino-Western relations, and its heightened influence on world affairs means that China remains firmly in the global spotlight.

From dormant to dominant

China has come a long way in the last 40 years. In the 1970’s, the Chinese economy underwent huge reform, taking on market principals with carefully managed state guidance and assistance. The new economic policies, coupled with a rapidly increasing population, led to annual growth rates that Western nations (and Japan) could only dream of. For an economy that was smaller than Canada’s only two decades ago, it’s amazing to think that China’s economy is now very nearly the world’s largest.

Unstoppable momentum

From an investor’s point of view, China has developed a habit of continually surpassing all expectation. In the early days, percentage growth figures looked impressive because they were coming from a low base, but the fact they’re still able to produce these astounding growth rates now that they’re a global super-power, is beyond incredible.
To put it into context, in 1987 China represented just 1.6% of the world’s economy. Today, it contributes more than one third of global GDP growth, accounting for around 11.5% of the global economy. In 1820 it was 33%, so if history really does repeat itself, they won’t be running out of steam anytime soon. Indeed, their so-called “slowing” growth rates are coming in at between 6% and 7% per annum. China now has 251 billionaires, behind only the United States on the global Forbes rankings table. The UK comes in seventh, with 50 billionaire residents.

Accessing the Chinese opportunity

It’s still difficult to invest in mainland listed equities. To do so you need to set-up local trading accounts, and often Chinese citizenship, to purchase shares and bonds. Luckily for the international investor, the market is opening up, albeit slowly so as not to over-heat. The mainland Chinese Shenzhen exchange can be accessed via a partnership with the Hang Seng exchange of Hong Kong, but with caveats. Shares cannot be purchased and sold on the same day, and currency restrictions, size limits, lot-sizes and limited trading hours for foreigners are enforced.
There are alternative ways to gain exposure. The largest Chinese companies, such as Tencent or Hengan, tend to be listed on the Hang Seng in either US or Hong Kong Dollars, resulting in fewer restrictions for investors. Many shares also have listings in London or New York, via Global Depositary Receipts, usually sponsored by the company, so it offers a safe and liquid way to gain access. Netease, Baidu and Alibaba are good examples of these.

How Sanlam brings the Chinese opportunity to client portfolios

Sanlam has been accessing the Chinese opportunity on behalf of client portfolios for some time, and we’ll continue as long as it makes sense to do so. Our experienced trading desk has seen a huge increase in interest from clients who want to invest on these exchanges. We can offer access, guidance and advice as to how best to trade equities listed on Chinese bourses. 

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.