Debt Free

Don't invest in the exploding Chinese market! It's too dangerous. As with any foreign country, you have no control over any aspect of the economy or government. For that matter, a U.S. investor has about the same level of individual control over those factors in the U.S. You can, however, make impressive gains in your investment accounts by profiting from the expansion of overseas economies such as China and India, without actually putting any of your hard earned money there.

How are you supposed to do that? Well, I'm basically a financial chicken. Sure, in the past I've tried to make impressive gains from micro-caps and OTC stocks that friends with great investment track records assured me were spectacular deals. In many cases these companies seemed like good plays on paper too. You know the drill; sound financial fundamentals, great management team, and in a market that looked to be positioned for both large near term and long term growth. In most cases, these stocks turned out to be a bad idea.

I had another such tip come across my desk a few months back, this one for a start up that looked to have a huge upside with little downside. I ran it by a friend who is a very successful investor. In fact, he sits on the board of several large, public companies and runs a medium sized technology VC firm. He's a great sounding board for such matters. His advice: Stay away from such investments. He pointed out that, for every one of these microcaps or start ups that looks like it will provide you with financial security, there are about 95 that will take it from you.

That's kind of how I feel about investing in the Chinese or Indian markets, no matter their potential. But, that being said, there's just too much potential there to avoid. So, how's an investor to capitalize on the trends generated by these expanding new economies, without facing excessive risk and uncertainty? It's the same way investors can capitalize on the oil market without actually investing in any of the big oil stocks. Look for companies that stand to benefit from the expansions in these areas.

It's been noted that during the gold rush, those who really made the gold were not the miners, but those who supplied them. It's much the same today. Look at the Chinese and Indian economies. What are their greatest needs, and which companies are best positioned to supply them or their component parts? Obviously, raw materials are essential to expanding economies. One only has to look at the recent raw material price increases in the commodities markets to see some of the effects caused by China's, and to a lesser extent India and the Middle Eastern country's, voracious appetite for things such as copper, aluminum, zinc, oil and nickel. These are basic needs of manufacturing economies.

What other needs of the Chinese and Indians are companies struggling to meet, and more importantly, which companies are best positioned to supply them? If the firms are located in more stable countries, such as the U.S., Canada and Europe, then in theory, you'll get to take advantage of the growing demand in China and India, but mitigate much of the risk of actually investing directly in securities from those countries.

Other examples include companies that supply that which China and India cannot, either technology or industrial tooling. China has a stated goal to increase efficiency and reduce energy usage. Who can make that possible? What about those who supply something whose needs always increase when the economy grows, such as transportation, specifically air travel. Airlines who service China for freight or passenger service or the companies who supply them with aircraft, leasing, spare parts, or other associated products or services could be attractive as that market grows.

You can do very well taking advantage of the growth in foreign economies without exposing yourself to the degree of risk you'd experience by owning foreign equities.