Why China’s Growth Is Great For U.S. Stocks

I grabbed my duffle bag before exiting the train.

Passengers poured onto the escalator. I’m claustrophobic in crowds, so I chose the stairs instead. Breathing heavily after my climb, I walked towards the train station exit.

That was when I stopped.

If I were hungry or thirsty, my five closest choices were a Starbucks coffee shop, a Chinese food restaurant, a Burger King, a McDonald’s and a KFC selling Coronel Sanders’ famous chicken.

That might not sound strange – until you learn where I was standing. I was in Guangzhou, China. I took a video, so you can see it for yourself.

 

Check it Out at Assetbuilder


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Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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9 Responses

  1. james says:

    Hi Andrew, great article which I think raises a very interesting point about how essential it is to add international funds to your portfolio, when the companies in the big indexes like the S&P 500 and FSTE100 get lots of revenue from abroad anyway. I have read multiple sources that say the S&P 500 companies get around 30% of their revenue internationally and with the FSTE100 it is said to be nearly 80%, with around 30% coming from emerging markets. As these funds are so much cheaper than the majority of international funds, especially emerging markets, is there an argument to say international funds aren’t really required?

    • Hi James,

      I would only agree if the two moved hand-in-hand, and if their CAPE ratios (cyclical price to earnings ratios) were the same. But they are not. Notice the huge performance discrepancy during most years. Some decades, international gives the US a beating. Other decades, it’s reversed. By owning them both, and rebalancing, you reduce risk and increase diversification.

      Cheers,
      Andrew

      • james says:

        Thanks very much Andrew. I had a feeling you might say that, but I think I’ve still got to ask how an investor can assess the trade off between being fully diversified and the fees they pay. For example, if I want to be truly international in one fund the cheapest option at my broker comes with an expense ratio of 0.25%. However, I could put together my own portfolio based on US, Japan, UK and European funds for less than 0.10%. These countries appear to make up about 80% of the global fund, so I would only be missing out on about 20% of the market. Is it worth paying more than double in fees to get access to 20% of the market?

        • James,

          If you work out the difference you would pay in fees between 0.25% per year and 0.10 percent per year, you will find it minimal. On a $100,000 investment, the difference would be just $150 a year. Your personal answer will depend on the value that you place on diversification.

          Cheers,
          Andrew

          • James says:

            Hi Andrew,

            Thank you for your reply. In that case, I think diversification is worth paying the extra for.

            Cheers

            James

  2. James says:

    Hi Andrew, it took me years before I finally found a good source of information on investing for British expats in the form of your article about investing using Saxo Capital Markets. The information was so good, that I used your site for the rest of my investing research and this gave me the confidence to put a portfolio together based on the example you gave, so thanks so much for that. My portfolio is only a little different to your example. I chose an iShares international government bond fund (SAAA) because I don’t know where I’m going to retire and HSBC MSCI World (WRD) because it has a cheap expense ratio of 0.15%. Finally, I supplemented this with Vanguard Emerging Markets (MFEM) which has an expense ratio of 0.25% to get emerging markets exposure. I was more than happy with that until I read the above article about China and it got me thinking about my portfolio again. Hence the above questions and thanks to your excellent replies I thought I’d better read your book. It was absolutely fantastic and packed full of excellent information. In fact it was so good that I read it in a single day. There was just one part of the book that I am not 100% clear about and that is the example funds for a British Global Nomad. Firstly, the iShares MSCI World (SWDA) seems to be identical to my HSBC World fund in that it is a developed markets fund and doesn’t contain any exposure to emerging markets so my first question is why no emerging markets? Secondly, the bond fund is inflation linked, which is something that I had not considered before. It seems to me, that inflation linked bonds act differently to normal bonds and therefore I was thinking about adding this to the bond section of my portfolio for even greater diversification maybe 50/50 (SAAA/IGIL) what do you think about this? Finally, after reading many of your articles and your book I notice that you’ve never mentioned HSBC etfs even though their prices can be very competitive, as the largest portion of my portfolio is HSBC MSCI World I can’t help but ask is there any reason for this?

    • Hi James,

      Congratulations on your portfolio. And you’re a very careful reader. I chose SWDA out of simplicity, not even noticing that it didn’t have emerging market exposure. So thank you for the heads up on that one. I’ll amend that in my book’s next print run. It just sold out of its first print run, and ironically, the second print run was yesterday. I’ll add the emerging market index to that mix. As for the inflation linked bond fund, it’s a good one. As for HSBC’s indexes, there are an increasing number of ETFs and companies to mention. Once we get fees down to about 0.25% per year (or lower) it’s a process of splitting hairs, and ETF fees tend to keep lowering over time. Next month, there will likely be even more ETF options. That said, that shouldn’t make you switch anything.
      It looks like you have established a strong portfolio. Keep adding money every month (or quarter) and do your best to control your emotions when the markets take their next painful dive. Your behaviour, and your ability to save, will make the biggest impact….now that you have a good investment plan in place.

      Cheers,
      Andrew

      • James says:

        Hi Andrew,

        Congratulations on your book selling out of its first print run. If you change it thanks to something I noticed, that’ll mean that I’ve contributed to the best investing book out there. As for being a careful reader, I’m not sure about that but I guess I read your book carefully, because it was so good that I didn’t want to miss anything.

        Thanks again for all the great advice.

        James

        • Thanks James,

          I really appreciate that. Fortunately, none of the dogdy investment sales guys have posted a review of my book on Amazon (yet?). With the first edition in 2015, about six of them jumped on me in a single day, hammering the book’s overall Amazon ratings. I remember desperately asking people on this site to review the book, so its overall star rating looked somewhat acceptable. Having this online community helps in a lot of ways. So once again, thank you for your sharp eye. Your amendment will occur (with the edition of the emerging market index in that global nomad portfolio) in the third print run, which will likely be this summer.

          Thank you!

          Andrew


  3. no one has more first hand experience helping expat investors

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