China ETF Plays: One Country, Many Options | ETF Trends

The media may be focusing on China’s problems of the day, but China’s fundamentals look sound and the country’s related exchange traded funds (ETFs) may reflect conditions that are just right.

From the start of the year to last Wednesday, the Shanghai Composite Index and Hong Kong’s Hang Seng both declined 8% and 8.7%, respectively, writes Daniel Harrison for IndexUniverse.

However, Hong Kong-based Morgan Stanley China strategist Jerry Lou expects that “2010 growth will be high, inflation will be mild and policy exit will be moderate. For equities, this means a temporary Goldilocks bullish condition before inflation eventually bites.” Markus Rosgen, chief strategist for Citigroup in Hong Kong, also agrees, pointing to the 13.7 times earnings and 2.2 times book value that are relatively equivalent to most global stocks. [Why China May See More Growth.]

An investor’s main choice in investing in China may be through the iShares FTSE/Xinhua China 25 (NYSEArca: FXI) or the iShares MSCI Hong Kong Index (NYSEArca: EWH) as a proxy for China’s markets. [More on Hong Kong.] The major difference between the two funds is FXI’s heavier weighting in financials at 35%. Other China ETF options include:

  • SPDR S&P China (NYSEArca: GXC)
  • Claymore/AlphaShares China All-Cap (NYSEArca: YAO)
  • Claymore/AlphaShares Small Cap (NYSEArca: HAO)
  • PowerShares USX Golden Dragon Halter (NYSEArca: PGJ)

Some believe that a new bubble is forming in China’s real estate sector after real estate prices increased around 20% in 2009. Still, Jonathan Anderson, strategist for UBS in Hong Kong, projects a slowdown in the real estate sector and doesn’t expect any bubbles popping for some years. Investors interested in China’s real estate boom may play the Claymore/AlphaShares China Real Estate (NYSEArca: TAO) or EWH. EWH has a 25% weighting in real estate. [China’s Buying Spree.]

Potential investors may also consider other China ETFs that target specific sectors, such as:

  • Claymore China Technology ETF (NYSEARca: CQQQ)
  • Global X China Technology (NYSEArca: CHIB)
  • Global X China Consumer ETF (NYSEArca: CHIQ)
  • Global X China Industrials ETF (NYSEArca: CHII)
  • Global X China Financial (NYSEArca: CHIX)
  • Global X China Energy (NYSEArca: CHIE)
  • Emerging Global Shares China Infrastructure (NYSEArca: CHXX)

It should be noted that CHIQ is heavily weighted in automobile manufacturers. Kate Zhu, an automobile sector strategist for Morgan Stanley in Hong Kong, says that auto prices will face downward pressure due to a drop in demand and a 26% year-over-year increase in supply. However, it shouldn’t be ignored that China is one of the world’s fastest-growing auto markets. [More on the New China Infrastructure ETF.]

For more information on China, visit our China category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.