Looking For Profits In China? Start With The Big Funds and Drill Down (FXI, FXP, CHL, PTR, VWO)
Richard Rittorno: Analysis seem to be split on weather China’s economy is coming in for a hard landing or not, but colleagues who have been to China recently indicate see both less construction cranes and more consumption of non-necessity items such as smart phones, electronics, education and a higher standard of eating.
One of the easiest ways to gain exposure to China’s market is via ETFs like the FTSE China 25 Index (NYSEARCA:FXI) ETF, which seeks investment results that correspond generally to the price and yield performance — before fees and expenses — of the FTSE China 25 Index.
The index consists of 25 of the largest and most liquid Chinese companies, and is designed to represent the performance of the side of the Chinese equity market that is available to international investors.
Morningstar categorizes FXI as large/value within the Morningstar Style Box with average risk and average return with a 2.18% dividend yield as of January 8, 2012.
As far as market return goes, we see extremely volatile performance across a five-year period, starting with 55.02% in 2008, -47.57% in 2009, 46.82% in 2010, 3.51% in 2011 and -17.57% so for 2012.
However, as a broad ETF, investment traders need to know and understand what makes up the portfolio and how it applies to one’s own due diligence surrounding China’s economy.
Lifting the cover on the FXI, we find the following 25 companies:
|Company Name and Ticker||Net Assets||Sector|
|CHINA MOBILE LTD (CHL)||10.03||Telecom|
|CHINA CONSTRUCTION BANK-H (CICHY)||8.81||Financial|
|IND & COMM BK OF CHINA-H (IDCBY)||7.96||Financial|
|CNOOC LTD (CEO)||7.11||Oil & Gas|
|BANK OF CHINA LTD-H (BACHY)||6.09||Financials|
|PETROCHINA CO LTD-H (PTR)||4.40||Oil & Gas|
|CHINA PETROLEUM & CHEMICAL-H (SNP)||4.20||Oil & Gas|
|CHINA UNICOM HONG KONG LTD (CHU)||4.12||Telecoms|
|CHINA MERCHANTS BANK – H (CIHHF)||4.06||Financials|
|AGRICULTURAL BANK OF CHINA-H (ACGBF)||4.01||Financials|
|CHINA SHENHUA ENERGY CO – H (CSUAY)||4.01||Basic Materials|
|CHINA LIFE INSURANCE CO-H (LFC)||3.89||Financials|
|CHINA TELECOM CORP LTD-H (CHA)||3.78||Telecoms|
|PING AN INSURANCE GROUP CO-H (PNGAY)||3.67||Financials|
|CHINA CITIC BANK CORP LTD-H (N/A)||3.45||Financials|
|BANK OF COMMUNICATIONS CO-H (BKFCF)||3.32||Financials|
|CHINA PACIFIC INSURANCE GR-H (CHPXF)||2.71||Financials|
|PICC PROPERTY & CASUALTY -H (PPCCF)||2.59||Financials|
|CHINA COAL ENERGY CO-H (CCOZY)||2.47||Basic Materials|
|YANZHOU COAL MINING CO-H (YZC)||2.26||Basic Materials|
|ANHUI CONCH CEMENT CO LTD-H (AHCHF)||2.00||Industrials|
|CHINA MINSHENG BANKING-H (CMAKY)||1.93||Financials|
|ZIJIN MINING GROUP CO LTD-H (ZIJMF)||1.23||Basic Materials|
|ALUMINUM CORP OF CHINA LTD-H (ACH)||0.94||Basic Materials|
|AIR CHINA LTD-H (AIRYY)||0.93||Consumer Services|
If analysts are correct that the government of China is still keeping a tight grip on lending, then FXI may not as fare well with a little more than 53% of the holdings being in the financial sector and only about 44% spread across oil & gas, telecoms, basic material and consumer goods.
It might benefit traders to seek out the best-of-breed companies in China and establish their own basket of stocks to trade the China story.
China still appears still be a conducive place to invest, except now, it appears, traders will need to take a more surgical approach at the Chinese market than they did back in 2008 and 2010.
We will dig into more of the oil & and gas, consumer and telecom names and review a few China sector-specific ETFs throughout the week.
Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.