Morningstar Advisor - December/January 2012 - (Page 58)

Morningstar Conversation by Chinese policymakers to rely on the export market to provide further economic growth. I do agree with them. Being the world’s factory comes at a huge price to the environment and to the health of the Chinese population. Air pollution, the overexhaustion of natural resources, and the environmental damage—all of these things are not priced into the export goods prices from China. American policymakers should focus more on putting pressure on China over labor rights and to increase environmental standards. Such pressure will make the prices of Chinese goods go higher, even without the exchange rate going higher. I think that’s a much better way to rebalance global trade than just simply relying on the exchange rate. Morningstar Advisor Magazine—Don’t Miss an Issue! Subscribe for FREE today! Call +1 888 235-0828 or visit MorningstarAdvisor.com Reach the advisor audience. Reserve your ad space today: February/March 2012: Europe’s Debt Crisis China and Russia, the SOEs performed better for investors than private companies. You know, I’m opposed to governments owning enterprises, but as an investor, if you become a shareholder in a large SOE, you’re on the government’s side. Government agencies help the SOEs whenever they are in big financial trouble. Of course, when they’re doing too well, the government agencies will try one way or another to allocate some of the profits away. But on balance, if you like stability and low volatility, SOEs are not a bad way to go. I know some U.S.-based hedge fund managers just love to hold the shares of the big Chinese SOEs because they think the dividend yields are typically higher and their stock prices are more stable. Also, executives at the SOEs have much less incentive to manipulate their accounting numbers because, for them personally, they don’t benefit at all from the upside of their stock prices. So, why would they do it? Private business executives are the opposite. They have too much incentive to manipulate the accounting numbers. So, as a result, we have seen companies in China that have fabricated their accounting books. Now, if you want wealth creation and are willing occasionally to be exposed to some accounting fraud risk, the Chinese Internet industry and the consumer-oriented businesses have a lot of growth potential—the hotels, leisure, tourism, restaurants, food industry, pharmaceuticals, e-commerce, Internet lifestyle-oriented industries. They all have great potential, but at the same time, there’s the risk of accounting fraud. K Peng Chen, Ph.D, CFA, is president of Morningstar’s global investment management division. Investing in China Peng Chen: For investors in the United States, how would you suggest people look at China from an overall allocation perspective, as well as in terms of selecting specific securities and so forth? Zhiwu Chen: I think that the best way to The European debt crisis is constantly evolving, and Morningstar’s analysts will provide insight about where the crisis stands, who’s affected, and where to find pockets of value. They will offer strategies and solutions for finding investments that work amid the uncertainty. Ad Close: Dec. 16, 2012 Materials Due: Jan. 6, 2012 For more information, contact: Mary Uribe, Mary.Uribe@morningstar. com, +1 312 384-3811 Online media kit: www.morningstar.com/aboutus/ mediakit.html benefit from China’s economic growth is to invest in U.S. and Western multinational corporations that have a lot of business exposure to China. You get the benefit of both worlds: China’s economy and the U.S. legal and institutional infrastructure. Japanese companies, too. Big Japanese multinational stocks have performed pretty much the same as big American multinational stocks. Japanese multinational firms get most of their revenue now from outside of Japan, so they have been able to benefit from the opportunities in China. The second way to benefit from China growth is through the state-owned enterprise stocks. Last year, I had some students do some quick research on SOEs versus private firms from emerging-markets countries. In countries like 58 Morningstar Advisor December/January 2012 http://www.MorningstarAdvisor.com http://www.morningstar.com/aboutus/mediakit.html

Table of Contents for the Digital Edition of Morningstar Advisor - December/January 2012

Morningstar Advisor - December/January 2012
Contents
Contributors
Letter From the Editor
Seduced by Complexity
Is China Exposure Important for a Portfolio?
A Niche Built on Trust
How to Find Your Client’s Investment Style
Taking the Long View
Consensus on Europe Elusive
Four Picks for the Present
Investment Briefs
Is Perception Reality for Active Managers?
Be Alert for Basic-Materials Bargains
Investment Boom Unsustainable
Digging Moats in China
Where China’s Domestic Companies Stand to Benefit
Arising Opportunities
China Strong Long Term
From Currency Manipulation to International Acceptance
The Keys to China’s Fortune
Wedgewood’s Lessons Pay Off
Reading the Evidence on Indexing
Scouting for Investments Abroad
Yield, Please (Hold the Europe)
Mutual Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
China Fund Managers Eat Elsewhere

Morningstar Advisor - December/January 2012