There has been phenomenal growth in China’s economy and marketplace. But there are some dissenting voices that mark China’s economy and country-specific exchange traded funds (ETFs) as artificially high.
According to Carlton Delfeld for MoneyShow, China’s market is overvalued and vulnerable. Delfeld points to China’s high price-to-earnings ratio of around 50x as a key indicator.
China’s residential real estate also appears to be even more overvalued with multiples of 15x to 20x average household incomes in major Chinese cities. In speculative real estate bubble-era Japan, apartments peaked at 12x to 15x.
Additionally, fixed-asset investment has surged to 50% of GDP in China. In contrast, Japan had growth rates similar to China’s during its miracle decade by investing around 30% to 35% of its GDP. China’s housing prices appreciated 7.8% in December from the same month a year before. [Cause for concern as lending tightens in China?]
Delfeld urges people to invest in China ETFs with a lower weighting in the financial sector. For example, iShares FTSE/Xinhua China 25 (NYSEArca: FXI) has a 46% exposure to financials. He suggests switching to Claymore/AlphaShares Small Cap (NYSEArca: HAO), which has outperformed all the other China ETFs.