'China-Phobia' Is Real... Don't Fall Into It

It's crazy how similar the questions always are...

Every American I talk to about China has the same fears. They all worry about the same things. And they all ask the same questions:

Is China going to regulate my investments out of existence?

What about government control?

Can these companies really be trusted?

The funny thing is that these questions show a deep misunderstanding of today's China. They're rooted in the China of the 1990s. But a lot has changed since then.

China is more capitalist than most realize. And it's home to many of the world's most innovative businesses. It's just that Americans haven't learned it yet...

Most Americans are stuck worrying about the old China. And those who have caught up have new worries... namely, that Chinese companies want to rule the world – and micromanage America along the way.

Either way, we've got "China-phobia." And it's time to get over it. Because the investment opportunity is too good to miss.

Let me explain...

China-phobia isn't just a problem for the little guys. It often reaches all the way to the top of industries...

Representatives of Epic Games faced this just last week. The company is a major player in the gaming industry. It's the creator of the Gears of War franchise and the wildly popular Fortnite.

Epic also has a Chinese partner. China's mega app-maker Tencent (TCEHY) bought a 40% stake in the company in 2012. And even now, all these years later, China-phobia is still coming out of the woodwork.

Last week, Epic fielded some pointed questions about Tencent at the Game Developers Conference ("GDC") – a major industry event. During a public Q&A session, an attendee asked...

[I'm] wondering if it was Tencent's idea to abandon Unreal Tournament's community?

The question was about the game Unreal Tournament, which Epic Games decided to stop developing in December. The user didn't like the direction Epic chose to go. And they assumed the problem was Epic's Chinese investor – Tencent.

Steve Allison, head of Epic Games Store, took the question head on...

Tencent has no, zero, input on our business. They do not talk to us about what we're doing. They don't suggest what we should be doing. They don't make any decisions for us. They are not in our building.

Everything we do is with our team, and the final point of conversation when it goes up to the top is Tim [Sweeney, CEO]. And Tim does not take orders from Tencent. Believe me.

Tencent does have the power to nominate board members at Epic. And its 2012 investment led to the departures of many top company veterans. Things changed for Epic, and that was enough to spark China-phobia for many who follow the company.

That fear is completely misguided, though. Since Tencent's investment, Epic has not suffered at all...

Fortnite, Epic's absolute smash hit, came out long after Tencent made its investment. And it helped the company to earn a $3 billion profit last year.

Tencent is the world's largest gaming company. It has interests in several major game studios. And those investments are succeeding as well... For example, Tencent owns Riot Games, the company responsible for League of Legends – another global hit.

In the end, Chinese companies and American companies share the same goal – profit. The goal is not to micromanage their investments to death.

And if you think it is... take a closer look. You might be falling prey to China-phobia.

This kind of thinking could cause you to miss out on major investment opportunities. Folks often have a hard time getting on board with our China research... But those who have followed our recommendations had the chance to earn huge profits.

The long-term opportunity in China is still fantastic. I've visited the country twice in two years, and I'm as bullish now as ever.

So please, if you have a case of China-phobia, work hard to get past it. You don't want to miss out on investing in China in the coming years.

Good investing,

Vic Lederman

Further Reading

"You can't survey the global gaming landscape without centering your sights on China," Steve writes. The global gaming trend is taking off... Find out how China is leading the way right here.

"There's a tectonic shift coming for the Chinese stock market," Steve says. And it has the potential to create spectacular gains. Read more: The 'Chinese Nasdaq' Is Set to Launch This Year.

Market Notes
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