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Why China Should Be Part of a Long-Term Investment Portfolio

By U.S. News & World Report

Investing in China is a controversial topic, with China bulls and bears almost as far apart as supporters of Hillary Clinton and Donald Trump.

Bulls and bears talk “at” each other, often with red faces and raised voices. Although the debate about China may be as polarized as the presidential debate, it is possible to present an unbiased view that acknowledges both sides of the argument.

Despite the significant challenges on the horizon for China, long-term investment portfolios should include investments in Chinese stocks.

[See: 13 Stocks to Buy to Bet on China.]

Addressing the risks. Many commentators cite the slowdown of Chinese GDP growth as a reason to avoid China. GDP growth according to official statistics, which was 11.4 percent in 2005 and in double-digit levels as recently as 2010, fell to 6.9 percent in 2015. Private estimates are for Chinese GDP to fall further in 2016 than official statistics would indicate, with consultancy Capital Economics projecting 5 percent growth. An important consideration, however, is the size of China’s economy in 2016 relative to its size in 2005. China’s economy is more than five times larger today, so 5 percent growth on a much larger economy base is still quite robust. In a recent speech, Matthews Asia’s Andy Rothman commented about the need to “get away from the obsession with China’s GDP growth rate.”

China’s corporate sector binged on debt in recent years, in large part because of massive infrastructure spending initiated to stabilize the economy in response to the global financial crisis. Private debt in China represents more than 200 percent of GDP, far higher than the peak of U.S. private debt before the GFC and approaching the high reached by Japan in 1990. The explosion of debt creates fear that China will face a banking crisis and hard landing, repeating post-bubble cycles experienced in the U.S., Europe and Japan.

The debt picture may be more nuanced than alarmist headlines would indicate. The central government is the largest shareholder in most of China’s major banks, and a significant portion of the private debt was extended on behalf of the government as a form of fiscal stimulus. In the words of Rothman, “the potential bad debts are corporate, not household debts, and were made at the direction of the state, by state-controlled banks to state-owned enterprises.” Although China’s corporate debt is uncomfortably high, household debt is low and government debt is only 44 percent of GDP.

China’s overall debt, including corporate, household and government debt, is comparable to that of the U.S. and U.K. and considerably lower than that of Japan, France and Canada. That may not be unequivocally great news — as 255 percent debt-GDP ratio is still uncomfortably high — but it’s important for context-setting. Perhaps most importantly, very little of China’s debt is owed to external parties, so China (at least for the time being) has considerable latitude as to the approach and timing of structural change to reduce its private debt.

China’s leaders face a difficult balancing act: maintaining enough growth to preserve social stability while addressing the need to restructure debt-laden, money-losing state-owned enterprises. The slow pace of reform among state-owned steel, coal and electricity companies that dominate China’s rust belt is a concern, but the stereotype of China as an export-focused, state-dominated economy isn’t true anymore. Exports are a small part of China’s economic output, and the private sector is the dominant economic engine for the country.

[See: 11 Stocks That Donald Trump Loves.]

Embracing the opportunities. A “slower-growth” China accounts for about one-third of global growth, a higher proportion than was the case in 2010 when China’s GDP growth was 10 percent. Private sector employment is more than 80 percent of total employment in China, and outside of the manufacturing sector there are more jobs than job seekers. China may be the best consumer story in the world, and the rise of the consumer class in China is very real. Real household income rose more than 130 percent over the past decade, a noteworthy advance compared to nearly non-existent income growth for developed market households.

China’s consumers are in good shape, with high savings, low debt and rising household income. Retail sales in China gained 10.6 percent year over year in August, continuing a strong multi-year trend. The middle class, about 8 percent of the population today, is expected to triple to 300 million people by 2020. An aging population also provides opportunities, as 16 percent of the population (220 million) are age 60 or older today. Some of the most exciting opportunities are with the consumer-oriented companies that benefit from rising incomes, health care companies that support a more affluent (and aging) society and industrial companies helping to improve manufacturing consistency. Many of these companies didn’t exist 10 years ago.

Addressing China’s structural problems, including high corporate debt and sluggish state-owned enterprises, won’t be an easy process, but is likely to result in slower growth, pressure for currency adjustments and continued volatility rather than a crisis or hard landing. Despite the risks and volatile ride, China is likely to be an attractive investment destination for the patient investor.

[See: 20 Awesome Dividend Stocks for Guaranteed Income.]

Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements. All statements other than statements of historical fact are opinions and/or forward-looking statements (including words such as believe, estimate, anticipate, may, will, should and expect). Although TFC Financial Management believes that the beliefs and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such beliefs and expectations will prove to be correct.

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Why China Should Be Part of a Long-Term Investment Portfolio originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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