Recent fears that a Chinese slowdown was about to take Australia down with it have been shown to be overblown. How then do you take advantage of increasing Chinese investment in Australia and its companies? There are several ways actually.
First, buy the stocks of companies that the Chinese are interested in themselves. Such as Warrnambool Cheese and Butter Factory (ASX: WCB), the dairy producer that has been subject to a three-way bidding war since late September.
It is becoming clearer that of the suitors, Canada's Saputo, may be winning the takeover battle. However, now it seems a Chinese company are keen to invest. The China Investment Corporation is a Chinese sovereign wealth fund and it reportedly wants to act on any block selling of shares if substantial shareholders want to sell out.
Fortescue Metals Group (ASX: FMG) is another that is getting financial backing from Taiwanese investors, though they are not attempting to take over the company. With the higher iron ore prices and the ramped up production, the $1.15 billion investment is helping Fortescue meet its goals and pay down debt. That means less interest expense, better capital structuring and potentially more bottom line earnings.
Another investment idea is to buy the companies that sell to China directly. Think easy on this one. China's growing domestic market is to switch from export-laden heavy industry to more consumerism. So what would they want from Australia? More beef consumption points to companies like Australian Agricultural Company (ASX: AAC) and high-quality grain needs would be met by Graincorp (ASX: GNC).
If China is going to buy less coal to reduce pollution, then natural gas would be one alternative, and with the LNG industry to kick off exportation in 2015, companies like Santos (ASX: STO), Origin Energy (ASX: ORG) and Oil Search (ASX: OSH) could be suppliers of cleaner energy.
Foolish takeaway
Even foreign investors in Australian companies want exposure to the Chinese economy without taking on the extra risks of direct investment in China. This creates extra demand on Aussie stocks, which can push up share prices to higher multiples than what earnings dictate.
Supply and demand are the main drivers, so stay simple in your thinking. Another option would be to invest in BHP Billiton (ASX: BHP) or Rio Tinto (ASX: RIO), both are currently ramping up iron ore production volumes to meet Chinese demand.
