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Lindley Estes is a business writer for The Free Lance-Star and This blog is on Fredericksburg-area business. Send an e-mail to Lindley Estes.

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Author says investors must look to China

“THE biggest risk to any investor’s portfolio today is not to have at least some exposure to China.”

Thus begins “From Wall Street to the Great Wall,” a new book by Princeton University Economics Professor Burton G. Malkiel.

As the above quote from the preface suggests, Malkiel and his three contributing authors are extremely bullish on the prospects of China’s continued rapid growth.

Of course Malkiel isn’t the first to lay out the case for the generous profits that could come from China’s explosive economic development. Investors have aggressively bid up Chinese stocks for the past two years.

But Malkiel’s endorsement carries some weight. He is the author of the best-selling “A Random Walk Down Wall Street,” a classic text for the small investor preaching the value of buying low-cost index funds.

“From Wall Street to the Great Wall” opens with a discussion of China’s past, a proud history that stagnated during a 20th century of Japanese atrocities, colonialism and the communist leadership of Mao Zedong.

Although China has remained a communist nation in theory during the post-Mao years, in reality it’s embarked on one of the most stunning economic transformations in world history.

Having for many years been the factory to the world, China has now begun to develop its own world-class businesses and architecture. The 2008 Summer Olympics in Beijing will showcase to the world the growth of the past few decades.

Of course China has its problems, as Malkiel points out.

Tensions with Taiwan and Japan threaten to destabilize the nation. Polluting factories and deforestation make the air unhealthy. There’s a growing disparity of wealth between the booming coastal regions and the rural hinterlands. Rising wages threaten to push manufacturing to even lower-cost nations. Human rights and censorship remain concerns.

But Malkiel makes the case that China will push through these challenging problems and continue its breakneck growth. He suggests that China will emerge as the world’s greatest economic power within a few decades.

Investors should jump aboard for the ride, Malkiel advises. He discusses the uniqueness of the Chinese stock markets and which parts are best-suited for individual investors. There’s also a chapter on real estate, art and bonds.

The book offers ways that investors can gain access to China in their portfolios–through risky individual Chinese stocks, mutual funds focusing on the nation, exchange-traded funds, Asian regional investments and U.S. companies that do a lot of business there. It also suggests what prices should be paid for these assets.

Of course just because a country is rapidly growing doesn’t mean it’ll make a great investment. If the stocks are already bid up when investors jump in, returns are likely to be marginal at best. But patient investors who wait for the right opportunity could be richly rewarded for their belief in China’s long-term prospects, Malkiel argues.

The 20th century, most agree, belonged to the U.S. China could dominate the 21st century in much the same way, this book suggests. Investors would be wise to take notice.