One Good Idea: Invest in China-related stocks

Long-term capital gains are likely to piggy-back on a briskly growing economy

Dianne Maley
Globe Investor Magazine online, December 1, 2008

The Source: Don Reed, president, Franklin Templeton Investments Corp. and manager of the Templeton International Stock Fund.

The Idea: Look to China and the markets in its economic orbit for future long-term growth.

As the manager of a mutual fund that invests outside of Canada and the United States, Mr. Reed looks to the Far East (excluding Japan) as stock markets tank and the global economy seems headed for a long slowdown.

For China, a slowdown means economic growth in the coming year will still be an enviable 7.5 per cent or so, Mr. Reed notes. Economies in most of the world are forecast to shrink.

"We should be looking at where we are going, as opposed to where we are coming from," he said in an interview. "Diversify, look long-term and don't panic, because wonderful opportunities are to be found for investors."

The allure of China, and the major engine of its growth, is its continuing infrastructure build-out, which will also benefit the nearby countries and markets that supply it - Hong Kong, Taiwan and Thailand, Mr. Reed said. He is not finding much value in Japan, despite the market drop.

With most of the world in the dumps, "there could be a major shift to Asia out of a lot of the developed markets."

The Payoff: Greater potential for long-term capital gains than can be found in the major developed economies, including Canada.

The Big Risk: Whenever you buy stocks, you risk losing money. But the main risk in international investing is the exchange rate. If the Canadian dollar soars against major world currencies, gains could be reduced or wiped out entirely.

Why listen to Don Reed? During Mr. Reed's 35-plus years in the investment industry, he has earned a reputation for being a careful investor, although the fund he manages has fallen along with the market. The years Mr. Reed spent working with the legendary Sir John Templeton, who recruited him to manage the Templeton International Stock Fund in 1989, have left their mark.

"Sir John always said the time to invest was at the point of maximum pessimism," Mr. Reed noted. "We're not at it right now, but we're awfully close." Special to The Globe and Mail