A New Way To Invest In China’s Hottest Sectors

| April 9, 2010

You may not know it, but there’s a great way invest in China.  It’s new, and I’ll tell you all about it in a moment…

First, a little bit about China.

One of the reasons we’re exiting the recession so quickly is because of China’s rapidly growing economy.

Chinese demand for commodities and basic materials started growing just over a year ago.  That’s when the massive government stimulus plan kicked in.

Right now the Chinese economy is showing no signs of slowing down.  In the fourth quarter of 2009, the Chinese economy grew at a blistering 10.7% clip.

This pace is a little too fast for the leaders of China.  They fear a growth rate over 9.5% is unsustainable and will trigger inflation.

The government would be much happier with an 8.5% annual growth rate.

The Chinese central bank has already “tapped the brakes” on the economy.  They’re reigning in bank lending by increasing bank reserve requirements.

And just last week, the trading range of China’s currency, the Yuan, was hiked to its highest level in almost a year.  A stronger Yuan makes Chinese products more expensive on global markets.  It has the impact of slowing demand.

Next week we’ll find out if the “brake tap” had the desired effect.  That’s when China’s first quarter economic data will be released.

Despite the central bank efforts, economists are expecting a jump in the annual growth rate to 11%.  They’re also expecting inflation to increase.

Any way you slice it, a hike in Chinese interest rates is a near certainty.

The usual knee jerk reaction to an interest rate hike is a stock market selloff.  If the Chinese market dips, it would present a great buying opportunity.

One way to get in on the action is a broad-based China ETF.

Two of the most popular China ETFs are iShares FTSE/Xinhua China 25 Index Fund (FXI) and iShares MSCI Hong Kong Index Fund (EWH).

However, I need to warn you, they’re both heavily weighted toward financials.  A full 47% of FXI is made up of financial company stocks.  And EWH is even worse.  Almost 60% of EWH are financial stocks.

I think there’s a better way to invest in China ETFs.

In December, Global X Funds introduced the first family of Chinese sector specific ETFs.

Here’s the list…

    • Global X China Consumer ETF (CHIQ)
    • Global X China Energy ETF (CHIE)
    • Global X China Financials ETF (CHIX)
    • Global X China Industrials ETF (CHII)
    • Global X China Materials ETF (CHIM)
    • Global X China Technology ETF (CHIB)

These sector specific ETFs by Global X Funds are very new.  Obviously they don’t trade anywhere near the volume of the more established ETFs, but activity is growing.

The market’s been waiting for these China specific sector ETFs.  They’re sure to gain in popularity very quickly.

The reason’s simple.  The best investment opportunities in China going forward will be in areas other than financials.

These Global X Funds offer the best way to drill down into specific Chinese sectors.

So keep an eye on China’s first quarter economic data.  It’s due out on April 15th.  Watch for a good deal of market volatility.  And remember, it’s a perfect opportunity to put Global X Funds new Chinese sector specific ETFs to work for you.

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Category: ETFs

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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