the Chinese real estate bubble, warning you about the Chinese economy.
The majority of those China worrywarts have been crying “wolf” for a long, long time. Like Samuel Clemens said, “the reports of my death have been greatly exaggerated” and that is certainly true of the Chinese economy.
Chinese Premier Wen Jiabao speaking at the World Economic Summit in Tianjin, said, “China’s economy is now in good shape, featuring fast growth, gradual structural improvement, rising employment and basic price stability.”
But don’t take his word for it. You need to look at the cold, hard facts and the ones that came out of China in the last week were impressive:
- In the last 12 months, the output from all the factories in China increased by 13.9% in the month of August. That was above the 13% that all the experts were expecting and more solid evidence that the Chinese manufacturers are doing just fine.
- All that increased work at China’s factories must have translated into extra income for Chinese consumers because retail sales jumped by 18.9% in August. I suspect a lot of those retail sales were to popular western brands like Tiffany, Louis Vuitton, Yum Brands, Nike, and Apple.
The Apple iPad started selling in China last Friday. The 16GB model will sell for $590, while the 32GB will sell for $708, and the 64GB for $826. How big of a seller will the iPad be in China? From my sources, the answer is BIG!
- Here’s proof of Chinese buying spilling over to its foreign trading partners. In August, imports into China jumped by 35.2% to $140 billion. That is on the heels of a 38% increase in July. No matter how you slice it, that’s a lot of “stuff.”
- The Chinese National Bureau of Statistics reported that home prices in its 70 largest cities rose 9.3% year-on-year in the month of August. That is, by the way, on the heels of a 10.3% year-over-year increase in July.
- Capital spending — on things like factories and office buildings — in urban areas grew by 24.8% in the first eight months of 2010. That shows that investors and business owners are confident in the future to invest their money into long-term projects.
- Unlike the U.S., China’s banks are eager to lend money. China’s big four state-owned banks extended a combined US$32 billion in new loans in the month of August, a 2.3% increase from July and the first increase in four months.
- Like gasoline is to a car, money supply is to a country’s economy. Show me a country with a growing money supply and I’ll show you a country with tons of growth ahead of it. M2, a broad measure of money supply, jumped by 19.2% in August. A lot of that money was from bank lending, but a lot of it is from businesses and individuals willing to spend — not hoard — any money that they accumulate.
Despite what the vocal naysayers tell you about China, it is still a vibrant, growing economy. China’s economy has grown more than 90-fold since the late leader Deng Xiaoping initiated economic reforms more than 30 years ago.
2010 is no exception. China’s economy grew at an annualized 11.9% rate in the first quarter and another 10.3% in the second quarter.
Most experts expect the full-year GDP growth numbers to come in somewhere between 8% to 9% and I think that is too low. Heck, the Wall Street crowd has been underestimating China for decades and not included enough China in their portfolios.
They are starting to figure it out though. A new survey of 215 money managers managing $579 billion by Bank of America Merrill Lynch found that 11% of them expect the Chinese economy to strengthen over the next 12 months.
Eleven percent may not sound like much, but that’s a dramatic change from the 19% that were BEARISH on China a month ago. That’s a 30% turnaround. And if those same 30% start putting more of the billions they manage into China … Chinese stocks will take off.
Next year is shaping up to be even stronger. China’s National Bureau of Statistics said last week that it expects China’s economy to grow by at least 10%.
In my view, it would be a big investment mistake to not include a significant piece of China in your portfolio.
I don’t want you to make that mistake, and the easiest way to avoid it is with exchange traded funds. Here are three broadly diversified China ETFs to consider:
iShares FTSE/Xinhua China 25 Index (NYSE:FXI): Seeks to track the performance of the FTSE/Xinhua China 25 index. This index consists of 25 companies that represent the largest 25 Chinese companies listed on the Hong Kong Stock Exchange.
PowerShares Golden Dragon Halter USX China (NYSE:PGJ): Seeks results that correspond to the returns of the Halter USX China index. This index consists of 103 Chinese companies whose common stock is publicly traded in the U.S. The index uses a formula that prevents the largest market-cap companies from becoming too large a component of the index.
SPDR S&P China (NYSE:GXC): Seeks to replicate the total return performance of the S&P/Citigroup BMI China index. This index consists of the largest 342 companies that are publicly traded and domiciled in China.
If you want to zero in on specific sectors of the Chinese economy, there are several ETFs that do that too:
- Claymore China Technology (NYSE:CQQQ)
- Claymore China Small Cap (NYSE:HAO)
- Global X China Consumer (NYSE:CHIQ)
- Global X China Industrial (NYSE:CHII)
- Global X China Financial (NYSE:CHIX)
- Global X China Energy (NYSE:CHIE)
And don’t forget about individual stocks. There are more than 100 Chinese companies — such as New Oriental Education (NYSE:EDU), China Housing & Land (NYSE:CHLN), and Mindray Medical (NYSE:MR) — listed on the NYSE or Nasdaq. It is as easy (and inexpensive) to buy shares in China Mobile (NYSE:CHL) as General Electric.
Between ETFs, no-load mutual funds, and individual stocks, nobody has an excuse to not include China in their portfolio.
Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in UWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Roberto McGrath, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Marty Sleva, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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