Getting A ‘Fair’ View of China’s Economy

china etfsTony Sagami: I visited the southern China province of Canton last week. And while I ate my share of delicious Cantonese food — like char sui, jook sing noodles and mantis shrimp — I wasn’t there just to feed my face.

My main purpose in visiting Canton was to see for myself how a vital part of China’s economy is really doing.

I came away plenty of answers … including three solid investing ideas … that I’d like to share with you today.

Inside China’s Most-Important Business Event of the Year

Canton is the ancient name for the city of Guangzhou, the epicenter of the Chinese manufacturing juggernaut. It’s also home to the China Import & Export Fair, or “Canton Fair,” which serves as a good indicator of China’s foreign trade activity.

Most Americans have never heard of the Canton Fair. But as a global-minded investor, it’s something you can’t afford to miss … even if you can’t attend this event in-person.

That’s because it’s the largest trade fair in the world, where thousands of manufacturers, businessmen and merchants gather to conduct business.

The Canton Fair has been held in the spring and fall since 1957. It has the largest assortment of products, the highest attendance and the largest number of business deals made at any trade show on the planet.

This event, the 113th of its kind, featured 22,000 exhibitors and 202,000 buyers from more than 200 countries. They gathered in Guangzhou to find everything from industrial products, textiles and garments, medicines and health products, gifts and consumer goods.

Quite simply, the Canton Fair is the single-most-important business event of the year in China.

A ‘Fair’ View of China’s Economy

You hear plenty about how the sky is falling in China, whose economy “only” grew 7.7% in the first quarter.

Well, somebody needs to tell the businessmen I met in Guangzhou that the world is falling into a deep global recession, because business was booming at the Canton Fair.

  • $35.5 billion worth of goods were ordered, an 8.8% increase from the last fair.
  • 202,000 buyers showed up, a 7% bump from the fall event.
  • While sales to the U.S. (down 0.5%) and Europe (down 4.9%) have wilted, business from emerging markets soared. Orders from other BRIC countries — Brazil, Russia and India — jumped 5.2%. Orders from Middle Eastern countries increased 3.8%.

Again, the “experts” from Wall Street and CNBC keep underestimating the power and resilience of the Chinese economy.

Sure, the U.S. and Europe are weak. But the rest of the world is buying Chinese goods by the cargo ship.

Developing Economies Doing More Business With Each Other

China’s neighbors are becoming increasingly important trading partners, as the number of the fair visitors from Middle East, Russia, Turkey, South America and Southeast Asia had increased remarkably.

China’s Purchasing Managers Index (PMI), an indicator of the manufacturing sector’s economic health, reached 50.9 in March. That is the highest number since May 2012 and evidence that the Chinese economy is far from sick.

Look at the most recent trade numbers.

In the first quarter of 2013:

  • China engaged in a total of $990 billion of trade, a whopping 13.4% year-on-year increase.
  • Exports hits $507.9 billion, an 18.4% year-on-year increase
  • Imports grew 8.4% $460.3 billion.

So, the next time you hear an “expert” tell you how bad the Chinese economy is doing, ask them if they went to the Canton Fair and talked to the Chinese sellers and foreign buyers.

If they had, they would probably be telling you a very different story … and giving you some information that could actually help you make money.

If you’d like to add some China exposure to your portfolio, it is easy to do with ETFs.

  • iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI) seeks to track the performance of the FTSE/Xinhua China 25 index. This index consists of the 25 largest Chinese companies listed on the Hong Kong Stock Exchange.
  • PowerShares Golden Dragon Halter USX China (NYSEARCA: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 United States. 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 (NYSEARCA: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.

Just a quick note about ETFs. While they are an easy way to play a country or an industry within that country, many of the component companies may be state-owned enterprises.

Those state-owned companies are often inefficient and bloated, which is why I prefer a carefully selected basket of Chinese stocks over ETFs. And there are, by the way, over 100 Chinese stocks traded right here on the NYSE and Nasdaq.

However, with thousands of ETFs available to trade, there are always ones that shine above their peers. And my International ETF Trader members are benefiting from my “pick the best and forget about the rest” approach to picking a solid balance of short-term trades and longer-term, fundamental-powered positions in the world’s most-powerful bullish and bearish trends.

In fact, my subscribers are long another way to play China, and sitting on a quick gain in an ETF I consider to be a mega-trend sector superstar. To get all my top ETF trades delivered straight to your inbox as soon as I release them, consider taking my service for a risk-free test drive. Click here now to get started …

Best wishes,

Tony SagamiWritten By Tony Sagami From Uncommon Wisdom Daily

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 inUWD, 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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