28 Mar Trump’s trade policies and investing in China

Q. What’s the best way to invest in China? Or do Trump’s expected trade deals mean this is a mistake?
— Investor

A. You’re right to pay attention to the president’s policies and how they could impact the stock market.

When it comes to China, there are many restrictions on foreign investors to directly invest in mainland stocks, said Altair Gobo, a certified financial planner with U.S. Financial Services in Fairfield.

He said most foreign investors use indirect sources, such as investing through companies in Hong Kong, American Depository Receipts (ADRs) in other exchanges, funds that use qualified purchasers or derivatives to achieve direct exposure.

Gobo said Chinese companies listed in mainland exchanges — Shanghai or Shenzhen — are called A-Shares.

“They trade in Chinese yuan and are what local Chinese investors buy and sell,” Gobo said. “The Chinese government allows some companies to also list on the Hong Kong exchange. They’re called H-Shares and are available to foreign investors.”

If you would prefer to own the broad indexes, you may want to research some exchange-traded funds, such as FXI, MCHI, GXC and ASHR, Gobo said. In addition, you can take a look at some “country funds,” such as Matthews China, Fidelity China Region and Invesco Greater China, he said.

Before investing in any foreign country, in particular China, besides the typical risk tolerance, you need to also assess currency, political and social risk.

There is an extra-unique element with China, Gobo said, as it is a communist and command economy, meaning there could be a conflict of interest between the investor and the political class.

“Regarding any expected trade deals, the spectrum of possibilities is so wide it makes it difficult to make a `macro’ investment decision,” Gobo said. “Within the next year or so, I think we will all get a lesson in economics regarding the pros and cons of free trade, balanced trade, trade wars and a term that I’m sure will re-emerge — fair trade.”

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This post was first published in March 2017.