Because China's consistent growth and enviable trade surpluses has been sustained for over 10 years, many investment analysts are rotating money out of U.S. markets and into China-associated investments.
This is not a short-term strategy. Investment experts explain that China's economy is growing at a much faster pace than the U.S. and will continue to profit from the steady decrease in value of the U.S. dollar relative to the Chinese yuan. So this strategy has two components (and two basic assumptions). First, growth will continue as China's economy continues to steam ahead. Second, China's currency will appreciate in value against the U.S. dollar.
If consistent, more U.S. dollars flowing in to buy Chinese exports and fewer yuan flowing out to buy U.S. imports means one thing: China's trade surplus will continue to grow at a healthy rate for many years to come.
Sure there will be blips along the way. World trade is complex and painfully unpredictable. That's why prudent investors don't put all their money into one large purchase of any investment. Instead, wise investors consider making a series of modest purchases over a sensible timeframe like a year or two.
And The Winners Are...
The following investments are cost-efficient Exchange Traded Funds (ETFs) designed to track the performance of foreign exchanges in countries like China.
#1 - iShares: FTSE/Xinhua China 25 Index (FXI on NYSE)
Price $65.50 on June 14/06
Also known as iShares FXI, this ETF tracks the 25 largest and most liquid Chinese companies trading on the Hong Kong stock exchange. With assets of some US$3 billion, iShares FXI has its largest holdings in financial services (30%), energy (22%), telecommunications (21%), and business services (13%). iShares FXI has over 60% of its assets concentrated in its top 10 stocks. China Mobile (10.4%) and Petro China (9%) are its two largest holdings, followed by China Life Insurance (8%).
#2 - Power Shares Golden Dragon Halter USX China Portfolio (PGJ on NYSE)
Price $14.20 on June 14/06
With about $500 million in assets, PowerShares PGJ is comprised of 51 U.S.-listed companies that derive most of their revenue from China. PGJ has 47% of its assets concentrated in its top 10 stocks. Like iShares FXI, China Mobile (5.7%) and Petro China (5.7%) are PGJ's two largest holdings.
Note that both China Mobile (CHL on NYSE) and PetroChina (PTR on NYSE) were each up more than 50% in 2005. With its heavier weighting in these stocks, iShares FXI has outperformed the smaller and more diversified PGJ.
#3 - iShares: MSCI South Korea (EWY on NYSE)
Price $40 on June 14/06
As we articulated in the article China's Top Trading Partners, South Korea is one of only a select handful of countries that runs a trade surplus in its dealings with China. As such, South Korea is distinctly positioned to benefit from China's formidable economic progress.
In addition, Korean currency (the won) is up over 10 percent against the U.S. greenback over the past six months.
iShares South Korea is an ETF with assets of some US$2 billion. Its largest holdings are in consumer goods (41%), financial services (22%), industrial materials (7%), and consumer services (6%). Its top 10 holdings comprise 55% of total assets, and include Samsung Electronics (21%), Kookmin Bank (9%) and Hyundai Motor (5%).
Please see our most recent article Chinese Water Investments.
Note: Suite101 does not offer investment advice. Instead, we seek to educate and inform our readers by writing about the latest trends in world trade. Armed with these insights, you are in a much better position to make your own decisions. We encourage you to add your thoughts to our analysis by starting a discussion below.
