“It seems that folks still can’t let go of China despite the huge run up in stock prices last year, but more importantly, the growing concerns regarding production overcapacity and credit expansion. As in the U.S., it is thanks to the help of the government that Chinese asset prices have recovered so well,” Sham Gad Reports From Investopedia.
“While investors should be extremely cautious entering China today, the facts are that economic growth will likely exceed 8% in 2010. While such growth is certainly aided by the Chinese government, it’s no different here in the U.S. today. The one difference is that U.S. GDP growth will be around 2-3% in 2010. So it’s not unreasonable to still have exposure to China. And despite the run up, names like agriculture company Yongye International (Nasdaq:YONG) and China Education Alliance (NYSE:CEU) are not expensive when the potential long-term growth rates are considered. Clearly, they are no longer bargains either, but they are quality names generating profits and trading at single-digit forward earnings multiples,” Gad Reports.
“Nevertheless, the best companies can see their share prices plummet when the overall market is in rapid decline mode. That’s a mistake no investor wants to make again. One way to reconcile maintaining exposure to China while securing protection in the event of a sustained market decline can be done via two ETFs. The UltraShort FTSE China 25 Proshares (NYSE:FXP) is a leveraged ETF that will move at twice the inverse rate of the FTSE China 25 index. The other is the Direxion Daily China 3x Bear (NYSE:CZI), which, as the name implies, will deliver three times the inverse return of a broad basket of Chinese stocks. A very small position in either could be useful if the Chinese markets correct,” Gad Reports.
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