Long-Term Investing Ideas in a Volatile Market
Simon recently spoke with a $35 billion global asset manager about how they're navigating the market volatility. The key takeaways are to think long term, tune out the noise...
China's 1.4 billion people and rapid pace of innovation are attracting the attention of investors. Yet Stansberry China CEO James Early shares several things to consider before putting money to work in the world's most populous nation.
March 1, 2022 – By Simon Erickson
China has mesmerized investors for several decades. Its 1.4 billion population, its intense focus on scientific research, and the rise of its tech-powered sectors like e-commerce, banking, and social media have captured the intrigue and imagination of growth-style investors. The collective market capitalization of all companies listed on the Shanghai Stock Exchange now exceeds $8 trillion, and several Chinese companies are individually worth hundreds of billions.
Yet it’s possible that Western investors are wearing rose-tinted glasses, and that investing in China isn’t in fact that simple. The country’s government has very different priorities than Western democracies, its consumers have a very different purchasing behavior, and its tech companies are regulated quite heavily. Americans are perhaps a bit too eager to extrapolate Silicon Valley’s success overseas. Finding “the Amazon or China” or “the Facebook of China” isn’t quite as easy as it initially may seem.
Still, it’s undeniable that China is growing quickly and is making a name for itself on the global stage. Are there important things that investors should consider before jumping in? Are there sustainable opportunities that don’t involve hidden risks?
To help us answer these questions, we’ve brought in an expert. James Early is the CEO of Stansberry China. He has traveled extensively to the country during the past decade, to help investors better understand China’s consumers, its business culture, and its broader investment landscape.
In this exclusive interview, James chats candidly with 7investing CEO Simon Erickson about the Middle Kingdom. He explains the higher-level goals that the Chinese Communist Party is trying to achieve and how it thinks about Western capital and investors. He describes the aspirations of the typical Chinese consumer and how the country is attempting to simultaneously balance entrepreneurship and stability.
James also points out several risks related to China, such as its tense trade relationships with the United States, its sometimes erratic regulations, and its goal of ultimately annexing Taiwan. He also walks investors through the “variable interest entity” structure that’s used by many of its publicly-traded companies and wraps things up by describing how he would recommend approaching China as an investor.
Side note from Simon: James and I are former colleagues, who worked together for several years. It was a pleasure to host him for our podcast, and I’m thankful for him sharing his thoughts and opinions.
Publicly-traded companies mentioned in this interview include Airbus, Alibaba, Baidu, Boeing, Google, Huawei, and Tencent. 7investing’s advisors or its guests may have positions in the companies mentioned.[su_button url="/subscribe/" style="flat" background="#84c136" color="#ffffff" size="6" center="yes" radius="0" icon="" icon_color="#ffffff" desc="Get full access to our 7 best ideas in the stock market for only $49 a month."]Sign Up Today! [/su_button]
01:12 – What are the biggest overall goals of the Chinese Communist Party?
04:37 – What do we know about the typical Chinese consumer? How are they different than American consumers?
07:46 – How does China think about innovation?
14:25 – How do Chinese investors think about the stock market?
25:21 – What is China’s relationship with Taiwan? What do you believe is the ultimate outcome there?
27:28 – Are there investment opportunities in China? What important things should long-term investors consider?
Simon Erickson 0:00
Hello everyone and welcome to today’s edition of our 7investing Podcast. I’m 7investing founder and CEO, Simon Erickson. There’s a lot of attention on the international community right now, there’s a lot of concerns from investors about what’s going on in Europe with the advances that Russia has been having on the Ukraine, but we’re actually going to turn our attention to a different continent today. We’re going to talk about investing in China. There’s certainly been a lot of attention paid to China as well in recent years, and we’re going to get a perspective on what it would mean to invest in the country today. I’m joined by James Early. James is the CEO of Stansberry China. He certainly knows more about China than anyone else that I know. James, thanks very much for joining me here on the 7investing podcast.
James Early 0:41
Simon, it is my pleasure, my honor, it’s good to see you again, for those in the audience who don’t know, Simon and I used to work together years ago. So I’m happy to be on the podcast and happy to see his face again, also on the Zoom.
Simon Erickson 0:53
The pleasure is certainly mine, James, thank you for the kind words, I’m looking forward to picking your brain a little bit about China here. But let’s start at the 10,000 foot level. There’s been a lot of commentary in the media about China. I know you spent some time in the country, your business was related to it. What is it the China’s Communist Party want to accomplish right now?
James Early 1:12
The one word answer, Simon is stability. And that doesn’t sound so bad on the surface. I mean, Peter Drucker an organizational thought scholar that a lot of us studied his stuff in business school by the way, said that every organization has survival as its primary goal. And so the CCP has survival as its primary goal. Prima facie, that’s not so bad. I think the reason the CCP gets into so much reputational trouble among the international community is the methods that it used to, to secure that stability. And we see that in day to day life, like, for example, censorship. Squelching of negative information, or a lender, a company does something bad to a lot of people, it may be forced to perform reparations that might be in excess of the legal requirements, but they would enhance social stability.
James Early 2:10
So think of it as social stability at all costs. And those costs often include blocking out external media, you know, lots of propaganda to make people love the CCP. The young people, by the way, anyone born, I’d say, in the mid 1980s, and after is likely to be a very, like diehard communist in a way that people, let’s say, our age Simon, would not be. And that’s because after 1989, the Tiananmen Square Massacre, the government said, yikes, this is bad, we didn’t like how these students protested, we need to brainwash them a lot more. So they went to school learning, hey, we’re the heirs to this great kingdom for thousands of years of history. It is true, China is a tremendous country. It’s a great, great contribution to the world. The culture is thousands of years old. There are many, many wonderful aspects of China. But anyway, they said, you’re heirs to this kingdom and you’ve been stomped on for the past hundred and so years by by foreign powers, and now it’s our time. Now it’s time to rise up. And the foreigners are kind of holding us down. A lot of these kids really believe this narrative. So there’s this rabid patriotism, nationalism, that at some point kind of almost becomes a little bit scary. China right now is at its all time, lowest ratings, and these Pew Research polls have negative sentiment abroad about the country. That sort of thing is a contributing factor. So I’m swerving with the answer a little bit. The one word answer is stability. The The reason that it’s such a big topic is the methods that China or the Chinese government, I should say, has employed.
Simon Erickson 4:01
Makes a lot of sense. James, let me double click on the patriotism aspect you mentioned on there. We know that the consumer in the United States, consumer spending, specifically consumer discretionary spending, is about 70% of our overall GDP. That number in China is lower, but it’s not insignificant. About 54% of China’s GDP is coming from the consumer spending. To the point you made about patriotism it’s a little different over there, what can you tell us about the Chinese consumer? Do they buy in different ways than Americans do? Do they think of brands differently? How does the average typical consumer in China differ from the consumer here in America?
James Early 4:37
Yeah, that’s a great question. Simon. And by the way, I like your shirt. It’s a lot like shiny or than mine. I gotta respect it. On your question. You’ve got better data than I do. 54% is a current number. I will tell you that probably 15 or 20 years ago, that number was like 19% or 22%, or some some small number, and that was problematic. It was too export dependent. Now they do have their own internal consumer economy. So that’s that’s a good story economically. There’s nothing wrong with that.
James Early 5:10
The issue for the American brands like Nike, Apple, or Adidas, not American brand Adidas, but a foreign brand is that there has been a fairly rapid shift from from foreign brands, I guess, in China to domestic brands, for two reasons. One, the quality of the domestic brands has actually gone up quite a bit. China has grown past being a low end manufacture and actually make some decent stuff. I mean, certainly shoes and fitness apparel, for example. They can make stuff that’s just as good as Nike can make. And this rabid patriotism is causing them to sort of go inward when they purchase their stuff, especially when it’s something like the the Xinjiang Controversy emerges, right?
James Early 5:56
China has these people in these these camps, Muslims, and you know that there are differing accounts about the exact treatment of them, but but the overall idea is it’s not good and many in the US and Europe have declared a genocide. Xinjiang supplies like 80% of China’s cotton. And so there’s this issue of, do the American brands want to use cotton from Xinjiang or sell into this market and some of them are stepping back from this some of them may be required to step back from this based on legislation here in the US. Chinese retailers, the Chinese brands are picking up that slack. And they advertise this stuff is proudly made with Xinjiang cotton and those rabid you know patriot consumers eat that up.
James Early 6:42
So yes, basically, even as short as five or 10 years ago there was a strong preference for foreign brands. Now it’s skewing quickly towards domestic. The one exception is the luxury brand Simon because you know there is no Louis Vuitton of China. There is no Hermes or all those high end brands except for high end alcohol. Multi has been a very good stock there. There is Baijiu, white liquors. I don’t drink, I tried it once. It was like fire water like jet fuel, like I couldn’t even drink half a drop basically. But anyway, they don’t have the high end brands. They know that. China is just not a high end country yet. But they used to have just the low end stuff. And I say now they got the middle end stuff. So that’s a negative story. If you’re a Nike that’s a negative story if you’re an Apple, and the Chinese consumer wants to buy a Huawei phone.
Simon Erickson 7:37
James, thank you for the kind words about my shirt, I will gladly send you one of the 7investing shirts over if you’ll send me some of that by Baijiu firewater. That sounds fantastic as well.
James Early 7:45
You got to deal Simon.
Simon Erickson 7:46
Let’s move on. Let’s talk about the tech sector. This is one that’s kind of sensitive, James we’re gonna go there anyway. Because China, you know, there’s there’s so much enthusiasm about billion and a half people, all the advances that it’s making a technology. A lot of companies are being compared to China, the Netflix of China, the Amazon of China, wherever you want to be of China. We have also seen that China has during the past decade, filed more than 390,000 AI patents, artificial intelligence patents. That’s 75% of the world’s total, but still a sensitive topic, James, because we know there are concerns about IP protections, about privacy, about theft of IP, over in China. How do you think about innovation and just IP in general in China?
James Early 8:28
Awesome. It’s a broad question. It’s a great question. You know, by the way, I read some things maybe two years ago, but the Chinese government has been outspending the US government 200 to one in AI. Now, the US still has a lot probably more private sector AI investments. So it’s not as bad as it sounds, but it still kind of bad. I think the US – I’m going to take a brief tangent and say one thing quickly. I think the US government, the US populace, especially the US lawmakers have a view of China that’s 10 to 15 years out of date. China is more advanced, it’s more aggressive and it’s been playing the long game for longer than we realize. We’re kind of caught with their pants down and we will have no choice as a country but to ramp up government support in certain sectors like AI, like semiconductors, maybe some some national defense type of stocks, because the Chinese government has done the same thing.
James Early 9:24
Chinese government has freely blurred the lines between public and private. And that’s something that was kind of like a taboo in in Western countries. I remember years ago, Airbus, there’s a big stink between Boeing and Airbus. Airbus is sort of this European, you know, consortium supported airline maker, and the government was sort of unfairly supporting that company compared, in the eyes of Boeing compared to what Boeing got from the US. With China that’s like pocket change. They freely massively support all their industries they want to and their logic is So what that’s our model, it’s not a problem. It’s not unfair competition is what we do. So they have no problem to support research in AI, and advanced materials and all sorts of things. And they see AI, by the way, as a tool of government control, going back to that stability. China has more cameras per capita than any other country in the world. That’s impressive when you have 1.4 or 1.5 billion people.
James Early 10:26
But the support has not just been simple monetary research support. If you go to China, you may read on the US State Department website, be careful about how you use the internet. As foreigners, you’ll only be allowed to stay in certain hotels, because the government will monitor your internet and there have been instances, for example of the Chinese army, hacking travelers data and finding out information, let’s say about a merger, or some deal that’s about to happen and supplying that information to a competing bidder who’s Chinese. That’s one example just stealing technologies. Another example, I think the US Office of the Trade Representative, it’s a government agency here, has estimated that writ large Chinese theft of American IP is something like 400 to $500 billion per year. That’s a big number and to give it some scale, the the plain old purchases by China of US goods and services is a little over $100 billion per year. The legitimate purchases. So that’s Simon, that’s like someone who goes into a store and buys one shirt, perhaps not the shiny shirt you’re wearing, but buys one shirt, and steals four or five more.
James Early 11:41
I don’t mean to be harshly direct, but you know, these are the numbers. And maybe that estimates just an estimate, maybe it’s not totally accurate, but it is probably very directionally accurate. So there is still lots and lots of theft going on in this system and it has massively enriched the Chinese economy. Not just the US of you know, Japan, apparently, the high speed rail was at least partially stolen from the Japanese. I’ve seen literally in meetings, people grab PowerPoints or presentations with stuff they weren’t supposed to and just walk out the door with it. The culture, the current culture or situation there is kind of leans towards success at all costs climate. I want to be careful not to stereotype because certainly not everybody there is like this. Absolutely, certainly, people in the US of Chinese descent are not necessarily like this. I want to draw the line what I’m saying here, but there is definitely this presence in China of just do whatever you can to get ahead. That’s why the country is the largest violator of IP copyright and trademark laws. It’s not an issue.
James Early 12:51
As a as someone who had a research business there for a while, and we would publish content sometimes from writers and we had to fire a bunch of them, Simon because plagiarism, which is rampant, they will just copy. Our stuff got plagiarized too. People would steal our stuff. That does happen in the US, but it’s like 20 or 30x more in China. It’s just way more common. I dealt with more plagiarism in a month in China than I dealt with in probably 15 years of working in this industry in the US.
James Early 13:22
So the IP theft has problems, although they are developing their own stuff to some degree. Now, there are some Chinese drugs, for example, that are hitting the market in the US developed in China for the first time. So that’s a positive. I was at a conference last year and heard a guy talking about a medical patent that he filed and he somehow someone in China said, oh, there’s a similar patent here. And it was actually his exact patent. Someone had just stolen his medical patent and filed for it in China too. So there’s still a lot of that going on, as well. It’s kind of a mixed bag still. And the question is, what happens when we globalize? When we decouple which has been happening for the past several years. I know a China IP lawyer who said his caseload for copyright theft and IP theft has gone way up, the more pressure to de globalize we’re having. In other words, China knows it’s going to be cut off so this attempt to copy and steal foreign technology has been accelerating.
Simon Erickson 14:25
That’s a very objective viewpoint. James, you’re great to see it. You’ve seen this from boots on the street. I know you spent some time over in China. I want to chat a little bit about the investors in China that you’ve seen over there as well. In the United States, we’ve lived the American dream, right. Silicon Valley has created fortunes for a lot of individual investors. You invest in technology companies that get bigger and stronger over time. We know that a lot of European investors love dividends. They love larger companies that are paying out a portion of profits as dividends. How do individual investors think about the stock market or about enterprises in China?
James Early 14:59
Fantastic question. If we look back in the US now, the past couple of years, especially, you know, a year or so ago, during this meme stock frenzy, we got a glimpse into what day to day investing in China is like. The primary investor in the US, at least, if you’re a brokerage, looking to target demographic, it’s probably this male who’s 60 years old, nearing retirement, preparing for retirement, has amassed a bunch of assets. In China, those people are kind of too old to be into the stock market. It’s a younger person. Maybe someone in his or her early 30s, probably trading on an iPhone or a Huawei phone. Not doing a lot of fundamental research. It’s not just because they’re unsophisticated, I mean, partly investing is new to China, but they are embracing it very quickly. But partly because, at least for most of the initial years, fundamental research didn’t pay off in China. The market was too corrupt or too momentum driven and it didn’t make sense to dig into balance sheets, which you probably didn’t trust anyway.
James Early 16:07
So the market used to be 98%, retail money and maybe now it’s 80 something percent retail money, but it’s almost the inverse of the US. It’s a momentum driven market. It’s driven by sort of pure movements, there’s this idea that, if everyone jumps in in the same stock we’ll make it go up, and everybody makes money. And that worked, actually, for a long time in China, because it was like a coiled spring. When Deng Xiaoping began his open door policy at the end of 1978, the country, which is rebounding super quickly, from years and years of economic repression, let’s say. That’s kind of leveled off and these people have seen the market go up, and they’ve seen the market go down. So it is still the most frequently trading market in the whole world. They are rapidly moving towards a more fundamentally driven market. Studies done last year showed that investors in China who trade based on fundamentals outperform those who trade but you know, some day trading stuff or technical analysis, so it is moving in the right direction and these Chinese investors have a thirst for this knowledge. I would say they’re not there yet, in the sense that if we look, big picture to capital market, it should take money from investors, and give it to good deserving companies and deprive it from bad companies. That’s the way a capital market enriches a society and economy. China is not quite there yet. Barring you know, major government intervention, it will gradually get closer and closer there.
James Early 17:46
One thing I’ll add, though, from the perspective of a US investor, though, there is often little rhyme or reason, in what happens in China. The main piece of advice I would give is, don’t go against the government, if you’re an investor, and whatever the government supports, that’s probably going to go well. For years, it was these big national champions of technology, like Tencent, like Baidu, like Alibaba. These are kind of like Yahoo’s or Google’. Baidu effectively stole the Google Code and Google got kicked out of China after that happened. I mean, stole is a rough word, let’s say it was transferred. And if you look at the Baidu website, it happens to look very similar to the Google website, I’ll just say that much. But the government like that for a long time, and recently under Xi Jinping and just as these companies have gotten so powerful, the same things happen a little bit in the US to the regulators, and like, what, what’s going on? These companies have a lot of data, they got a lot of power, and we don’t have that so we’re going to clamp down. So over the past year, we’ve seen this crackdown on big tech for the same reason the US lawmakers have cracked down a little bit but in China is much stronger, and it’s much more powerful. So those stocks was tend to trade outside of China have gone down. So if you’re an ADR investor, American Depository Receipt investor in the US, you know, your Tencent, your Alibaba, those companies have gone down. That’s not necessarily the story for those the companies that are traded inside of China, the A shares market, the domestic Chinese market, actually had a decent year last year. So it depends on which side of the the Pacific you’re investing in your view of Chinese stocks, I’d say.
Simon Erickson 19:36
That’s a perfect segue for my next question, which is if you’re a successful Chinese company, tech company, whatever else it is, are you listing domestically on your own country’s exchanges? Because it used to be you go to the NASDAQ and you want to raise money from Western investors? Is that changing and or is the Chinese country as a whole discouraging their companies from listing on American exchange?
James Early 19:59
Yeah, absolutely. Both Chinese regulators and US regulators don’t want Chinese companies to list in the US anymore. China is kind of embarrassed that these companies see the US as a source of pride. Like, if you listed in the US, that’s a bragging, right, if you’re a Chinese company, you’ve arrived, you’re legitimate. And that gives you a lot of like face value in China. The government doesn’t like that and the government doesn’t also like it, if you list in the US, you have to open your books to a certain level of transparency that the government is not necessarily comfortable with. That’s why it was angry about the DiDi listing DD is like China’s Uber.
James Early 20:41
Let me give some history here. In early 2001, or 2000, Enron and Worldcom were some big accounting scandals. I think probably your older viewers like me remember this well. After in response to that the US started something called Sarbanes Oxley, which said not only if you’re going to trade in the US, not only do we do your numbers need to be audited, but the US PCAOB Public Company Accounting Oversight Board has to audit those audits. Has to be able to audit those audits. So if you’re in a foreign country, you have to make some arrangement for this to happen in every country, every foreign country that has companies trading in the US allows this except for China. And so for basically 20 years, the US has made an exception literally for China, maybe to appease them, but also because American investors frankly wanted to invest in these high performing Chinese stocks.
James Early 21:35
But it’s been breaking the rules. Last year with that we had a year and a half ago, Luckin Coffee was essentially a fraud and there have been a few others as well. And 10 years ago, we had still more frauds and it’s reverse merger fraud a period of time would say. So the US regulators have finally wisened up so that the days of Chinese ADRs trading in the US are numbered, whether it’s two more years or three more years, we’ll see what happens in Congress. I’m gradually going to be unwinding my holdings of Chinese stocks in the US. So for that reason, if you’re a Chinese company, you’re probably not looking to do an IPO in the US. China is bending over backwards to make it easy for you to list in Hong Kong, or in Shanghai, or one of the new exchanges. They have some new sort of tech focused exchanges because believe it or not, it’s traditionally been harder to do an IPO in China than in the US. You have to show a certain number of years of trailing profitability on because there are so many scams, the government correctly made it very difficult to do an IPO in the US. So a lot of these kind of pre profitable Chinese companies would come to the US to do their IPO instead of in China. And the government is realizing that they’re trying to make it easier.
Simon Erickson 22:50
Let me throw another acronym for anyone watching the show. We talked a lot about ADRs there’s another one to be keeping a track of if you’re investing in China, which is VIE, the variable interest entity. James, how big of a magnitude of a risk is this that in American investors and Chinese companies are not getting the same ownership like they are in an American listed company.
James Early 23:10
Look at this from a Chinese perspective. In China, not every law is enforced, and not everything that’s enforced is a law. It’s often said. VIE has never really been that legal to begin with. Sina pioneered the VIE about 22 years ago. It’s essentially where you have the real operating business China, but then that’s held by a Hong Kong company, which is maybe held and turned by, let’s say, a Cayman Islands company. And so when you invest in NYSC, technically, you’re owning a share of the Cayman Island company that’s trading in the US, which then owns some of the Hong Kong company, which then has some like, abstract, maybe ownership of the Chinese operating entity.
James Early 23:52
And the real question is, will this hold up in court? We have gotten vague references from the government all along. I actually have a VIE myself a very small one, Hong Kong control of a company in Chengdu. It’s used by big and small companies alike. I know mine would hold up in court. I mean, I have a contract. It’s one page. And I think that’s the real lesson here is there’s probably little use in applying American legal thinking to the Chinese system because the government is going to do what it wants anyway. Laws in China are written as great as they can possibly be written to let the government have that power in selective interpretation and selective enforcement. If every law was super black and white, everybody, including the political leaders would have to follow those same laws and I don’t think they necessarily want that. So essentially, the VIE structure could have been killed at any time the government is keeping it alive, I think for stability. If it suddenly said, okay, all VIEs right now are illegal and everybody’s gonna lose their money, you’d have this like massive uproar and a lot of folks probably within the Chinese government too and outside of China all over would lose a lot of money. And so for stability reasons, I don’t think it will kill VIEs. But just know you got no legal protection. But that bridge was crossed a long time ago, if you’re investing in China.
Simon Erickson 25:21
There’s another topic that’s thinking a lot of attention, James, which is Taiwan. China and Taiwan have got a long history, obviously, it’s a geopolitical risk that’s on everybody’s mind. We’re talking about geopolitical risks in Europe right now, but there’s been a long standing risk between China and Taiwan. Of course, the majority of the world’s advanced semiconductor chips are made in Taiwan right now. So there’s some repercussions that would happen to the rest of the world. What do you think the most likely outcome within the next five years is between China and Taiwan? Do they attempt to annex Taiwan again? Is it more complicated than that? My crystal ball is cloudy on this and I’d love to hear what your opinion is.
James Early 25:58
I would say, as much as a 50% chance China attempts to annex Taiwan in the next five years. If you look at the political rhetoric, the transcripts, and I have to read the English transcripts from the leaders. It has gotten slightly more belligerent about Taiwan, but they’re measured. I think they realize that a sudden invasion of Taiwan would not go over well, in the global political climate. They could do it before, let’s say the US or the military could come to to respond, because it’s really close. So it is possible. As you and I talked about a few weeks ago, I think the semiconductor factories may get blown up in that process, sort of as a poison pill deterrent. I don’t think that’s China’s main reason, though. It’s a big political thing. Like reunification of these countries. I mean, for much of history, Taiwan was actually not legally a part of China, but then recently, it was before the CCP took power. They say we want to go back to those days. They see it already is a part of China, it’s just a matter of time in their minds to reunify. That if anything else is one of the most core nationalistic beliefs. It’s hard to guess, I would say, 50% chance that something happens in the next five years.
Simon Erickson 27:28
Definitely something investors have to keep in the back of their minds. James, I mean, this has been an objective, look at things, right? We’ve been critical of things, but we’re seeing it like it is. There’s a lot that we’re excited about with China, a lot of people a lot of progress, but also a ton of risks right now. All of this that we’ve said, do you believe that there are investment opportunities that you’d be comfortable, even with all the risks we’ve described and taking as an investor in China, even if it’s broader trends or broader markets that you’re looking at? Is there any opportunity in China, you’re willing to take the risk on?
James Early 27:58
If I did, it would be in either private companies in China, in a sector the government supports for example, healthcare is often happy to get foreign money coming into the healthcare sector, which is currently like 5% of China’s GDP spending compared to 18% here in the US. They’ve got a rapidly aging population and they need support there. Elder care is another one. I would not buy US traded Chinese ADRs. If I were to invest in stocks in China, somewhere it would be through an ETF traded in the US that owns domestic Chinese stocks. A company called Krane shares, K Krane with a K. KRANE. has a number of those offerings. I don’t have any economic connection to those guys. I just know them. Their ETFs allow you to buy direct Chinese listings, I think those will do better than than the shares in the US which are subject to, you know, these blacklists, or the ADR delisting. There’s too much political risk to buy a Chinese stock traded here.
Simon Erickson 29:01
Great, James. And then just any final thoughts, I know that you know quite a bit about what’s going on in China. There seems to be a lot of attention on it from an investing perspective. Any final thoughts for individual investors who might be interested in China right now?
James Early 29:13
Yeah, well, I’ll echo my response to that last question first. First of all, remember that the domestic Chinese stocks are not as down in the dumps as those traded in the US. So don’t just look at your US stocks. and think, oh, you know, Chinese stocks are all down. I want to bottomfish. They’re not, okay. Over the past year that the Shanghai Composite Index, I think it’s flat maybe down a bit. It’s kind of been up and down. It’s not down 25% like most of those traded in the US. I would be careful, I would understand the risk. The bull case is that there’s a government put meaning the government just won’t let these companies fail because that would affect social stability. Broadly speaking Though I would prepare for more regulation. China is moving rapidly towards a more regulated climate and depending on your perspective that’s either good or bad, but it is frankly the reality Simon so whatever you do make sure it holds up to that thesis because I think that’s the new reality.
Simon Erickson 30:18
Once again, James Early the CEO of Stansberry China, an expert on investing in China for several decades now. James, really appreciate you being on the 7investing podcast.
James Early 30:26
It’s my pleasure, Simon.
Simon Erickson 30:28
Thanks, everyone for tuning into this edition of our 7investing podcast. We are here to empower you to invest in your future. We are 7investing.
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