In our article Top China Stock Pick 2007, we explained that FXI is a diversified Exchange Traded Fund (ETF) that benefits from China's continued impressive growth but without the risk of a single underperforming stock destroying overall returns.
FXI has a stock capitalization of over US$4.1 billion, with a modest price-to-earnings (p/e) ratio of 7.3.
FXI has invested 92.5% of its portfolio in 25 of China's largest and most liquid companies. Most analysts agree that China's robust economy will continue to forge ahead, so that portfolio offers a potential bonanza of world-leading companies.
Best Chinese Large Cap Companies
Many of FXI's companies are listed on the Shanghai stock exchange and other foreign markets including the one in Hong Kong. For example, the following large caps are not available on an American or Canadian exchange.
- Bank of Communications (4.2% of FXI's total assets)
- Bank of China (6.1%)
- Industrial & Commercial Bank of China (8.2%)
- China Construction Bank (4.1%)
- Ping An Insurance Group (4.0%).
Buying and selling the above large caps from a foreign exchange is prohibitively expensive. Today a handful of major Chinese "red" stocks are available on the New York Stock Exchange (NYSE):
- PetroChina (9.3% of FXI's total assets; PTR on NYSE) is China's largest producer of crude oil and natural gas.
- China Mobile (9.0%; CHL)'s 100,000 employees offer mobile telecommunications services.
- China Life Insurance (7.3%; LFC) has 640,000 exclusive agents operating in 12,000 field offices throughout China.
- China Telecom (4.4%; CHA) has 250,000 employees that provide wireline telephone, Internet, managed data and leased-line services.
- Sinopec Shanghai Petrochemical Company (4.1%; SHI) processes crude oil into petroleum products, resins and plastics sold around the globe.
Buy While Share Prices Are Low
As of February 2007, investor sentiment remains cautious on Chinese companies in light of December's generally large gains.
For example, China Life's stock price on the NYSE fell 16% to $45 on February 14 after more than doubling from 18.88 to 38.93 yuan on its first day of trading on mainland China's biggest exchange in early January. Back then, China Life's stock actually fell 4.7% in Hong Kong instead of tracking the share price in Shanghai.
PetroChina's share price is down some 10% from early January, which is not surprising when we consider the decline in oil prices.
Sources: Reuters ProVestor Plus Report
