China Index Investment Opportunites
Keeping with the topic of China and India, and having looked at some general reasons why the future looks good for these two rising superpowers, now let’s look at how to take advantage of their growth. Buying individual stocks is one way–companies like China Mobil Limited (CHL), the largest cellular provider in China, PetroChina (PTR)–the Chinese oil company, and Baidu.com (BIDU) the Chinese internet search engine are multi-billion dollar companies that have seen large returns in the past few years, and are three of the touchstone stocks in the Chinese market.
Of course, buying individual stocks can be risky and costly, especially for smart investors looking to diversify across many industries. The newest set of products that allow investors to comfortaby get into China, India, and all the other emerging markets (as well as almost any other industry) are Exchange Traded Funds, or ETFs. These products function in much the same was as mutual funds, arranging a basket of stocks in one package. What makes them better than mutual funds, is the fact that there are almost no fees. ETFs are not actively managed by a fund manager, rather they simply track the index that they are set to follow. Without active management, and with such incidental fees, ETFs can be traded like any stock throughout the trading day.
ishares FTSE/Xinhua China 25 Index, or FXI, is one such ETF that follows 25 of China’s top stocks. Buy buying FXI, an investor is diversified across the board in China, and basically owns several Chinese bank stocks, energy, telecommunications, and industrial materials companies. Another Chinese ETF is PowerShares Golden Dragon, PGJ. PGJ is a bit more diversified, with holdings in more areas than FXI, including media, software, healthcare, and hardware. While owning pure shares in individual companies can lead to bigger returns, these shares can also lead to bigger losses. These ETFs are giving incredible returns, but are more insulated against the bigger losses than individual stocks, due to their diversification.
Here is a two year chart showing FXI and PGJ against the S&P.
China and India are undergoing a full-on industrial revolution, and will be for some time. China is host to the 2008 Olympics, and businesses are falling over themselves to do business there. For people looking to get a foot in the door of China, these two ETFs are a good place to start.
