Avoiding The China Trap

by Alan Lavine and Gail Liberman

Although many are touting China as the place to invest, not all agree.  John Dessauer, editor of John Dessauer’s Investor’s World, Boston, says China’s remarkable economic growth over the past 10 years has recently spun out of control. He believes China's economy is headed for a hard landing. The reasons:

• China's inflation rate is considerably higher than official figures indicate, Dessauer says. Current measures to curb inflation are too little, too late.

• Rising oil prices have effectively destroyed Beijing's control over key economic forces.

• There is a growing electrical shortage.

• There are concerns about the safety of Chinese banks.

• As growth slows, China inevitably will import less from its neighbors, including South Korea, Taiwan, Malaysia, Singapore, Japan and Russia. This could hurt all of Asia. No one knows for sure what will happen to the Chinese economy over the short term. Investing in mutual fund that owns just Chinese stocks can be risky. So make it a small part of your holdings.

The best way to invest: Own an international stock fund that invests worldwide. It’s less risky. The reason: Losses in one region of the world may be offset by gains in other markets. Also invest in a well-diversified U.S. stock fund. Plus, make sure you also hold bonds and cash.  

Alan Lavine and Gail Liberman are husband-wife personal finance columnists, journalists and authors. They are the authors of "Rags To Retirement," published by Alpha Books. Their columns appear in newspapers throughout New England and the Southeast, as well as online. Their commentary on mutual funds and personal finance is carried by 200 radio stations nationwide every Sunday over Business News Network's Charles DeRose Financial Advisor Show. Al and Gail’s new book is "Rags To Retirement:  Stories from people who retired well on much less than you think," published by Alpha Books.

More articles by Al and Gail can be found here.