With Fed Chairman Ben Bernanke pushing China for currency and economic reform – investors could see a stronger yuan influencing their portfolios. On today’s "Morning Call," Sue Herera looked at the investment opportunities with Robert Hormats, the Vice Chairman of Goldman Sachs International who sees opportunities in retail.
Robert Hormats said a strong yuan will put more emphasis on China’s consumer goods sector. He says there are two factors to consider.
"As the yuan rises, it makes Chinese exports less competitive - and it means China's companies will have to focus on the domestic market."
"The Chinese government is trying to improve living standards in Central and Western China which lags behind improvements in the East. That means putting more spending power in the hands of those people. Any industries that focus on enhanced opportunities in the consumer sector should benefit."
"The Chinese want to buy cars - that means gas. They want more homes that means a lot more furniture - so they need a K-mart or Wal-Mart . They also need to get goods from the east to the west - (transportation)"
Hormats was joined on "Morning Call" by Guang Yang, Portfolio Manager with Templeton Global Opportunities Trust. He said infrastructure plays are well worth considering. "We really like the power generator sector - because power consumption will grow faster than China's GDP - which is already growing strongly."
Sue Herera asked how do you invest?
Hormats recommended a diversified portfolio. "You can get some benefit by buying American companies doing well in China - and then there are some Chinese companies traded both here and in Hong Kong that you might want to consider. But, you have to be selective and do your research. And then there are (mutual) funds. But again, you have to do your homework. I think China is a very good long term play - you might make a mistake in one area - so (the average investor) has to have broad coverage."
Guang said, "For people who want to have more direct China exposure (in their portfolios) I would look at mutual funds so you can spread the risk. In the power sector, look not only at the power generators.. but the people who sell to the power companies, such as coal mines as well as the equipment makers."