China Investing in U.S. Research

One technique that long term investors use to help find potential investment ideas is to watch where money is flowing into and out of. For example, one current trend is that money is flowing out of China and into U.S. based research and development companies. Like with any other event in the financial world, an opportunity to make money is being created here, but interpreting things and breaking them down into actual opportunities is a little bit more difficult.

The cause and effect process of all of this is very interesting to dissect and it reveals some answers for us. China has long been considered a place for mass production. Major companies have flocked here because it is a big source of cheap mass labor. It has helped pull China closer to becoming a major world power, and thanks to having the world’s largest population, they now have the biggest economy in the world, too. In other words, there’s a lot of people here, and a lot of wealth as already been brought over to help take advantage of this.

However, China’s leaders realize that they still have a ton of untapped potential. They are one of the world’s leading importers of raw materials, mostly used to improve their infrastructure. However, by investing money into research and development companies, China’s investors are attempting to piggyback off of what is being done in technologically advanced nations like the U.S. and move some of that information power into China. It is a very smart strategy, actually, because it keeps China from retracing a lot of steps in trial and error that have already been done by others.

There are two things to take away from this. The long term investors are seeing that China is making a solid effort to improve their economy. Buying funds that represent Chinese indices and putting money into companies that are most likely to benefit from this move is a smart long term move if you have the ability to weather the ups and downs that are likely to occur over the next 20 to 50 years while this comes to fruition.

However, there is a short term benefit here, and it is to the U.S. companies that are having money pumped into them. The trick is to figure out what these companies will be before they are heavily saturated by the Chinese investors that are increasing their stock prices. Following trends is a good way to predict this. For example, the Chinese company Huawei Technologies is putting money in the U.S. so that they can have assistance creating patents in the U.S. They have had a particular focus on fiber optics and communication research, and it is clear that the companies in the U.S. that are focusing on these things are going to keep moving up in price as China puts more and more time and money into them.

Money is also going into pharmaceutical companies. It’s hard to say how quickly the prices of these companies that are benefitting from private Chinese investments will benefit, but looking at the major companies, such as Merck, that have benefitted from the increased cash flow is a good start. The ultra short term trades, like day trading stocks and binary options, will not pan out here, but the longer strategies, such as swing and position trading with stocks, or the longer binary options, like those that span the course of a week or month, are good ideas. This allows the companies to increase in price based upon their own strengths, too. It makes chasing money a bit easier since you can also rely on fundamental indicators when you adapt this strategy.