George Leong: While China is struggling with its gross domestic product (GDP) growth metrics, the country’s main stock market—the Shanghai Composite Index (SCI)—is easily outperforming the S&P 500 and NASDAQ.
China may be stalling, but the Chinese economy is still growing at a rate of more than seven percent—far better than the rest of the G8 countries. Now, of course, that’s if you believe the GDP reading that is put forth by the Chinese government; as with most data coming from China, it is up for debate whether it is real or fictitious.
But going forward on the premise that the GDP reading is accurate, you can understand that the potential for investment growth is significant.
The SCI is up 37% this year, easily outperforming the U.S. domestic stock markets. And now, with access to Chinese stocks traded on the two Chinese exchanges (the Shanghai and Shenzen) made possible from a hub in Hong Kong, the SCI has been edging higher.
Add in the fact that the country’s central bank, the People’s Bank of China, is continuing to pump easy money into the economic system, and you have the potential for more gains.
But to make the real money, you need to gain access to the “A” shares that trade in China, and not simply the American depository receipts (ADRs) that are listed on U.S. exchanges.
Investing in China’s “A” Shares
The iShares China Large-Cap (NYSEARCA:FXI) comprises the 25 largest companies in China but its performance has been substandard, moving up a mere three percent this year.
If you want access to the “A” shares listed on China’s exchanges, you can either buy them directly via an account in Hong Kong or via an exchange-traded fund (ETF) called the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEARCA:ASHR). The ASHR ETF comprises the 300 “A” shares that are listed on the two Chinese stock exchanges. These companies are the bread and butter of the Chinese economy.
Chart courtesy of www.StockCharts.com
You can look at the ASHR ETF as the equivalent of the S&P 500. The companies are diversified across the majority of sectors; hence, they provide ample diversification.