There are some certainties in life, death and taxes among
them. These days, other certainties include the seemingly
never-ending spate of disappointing Chinese economic data and the
subsequent calls that stocks in the world's second-largest
economy are inexpensive.
With Chinese economic growth slowing, it could be time for
investors to adjust their views on stocks there to value
propositions from perceived high-flying growth plays. Yes,
China's economic growth, though disappointing compared to the
double-digit pace just a few years ago, is slowing. However, it
is still above the global average, but that does not mean Chinese
stocks, broadly speaking, are growth stories.
Year-to-date, the iShares China Large-Cap ETF (NYSE:
) and the iShares MSCI China ETF (NYSE:
) are down an average of 10.2 percent. The Guggenheim China
Small-Cap ETF (NYSE:
) is off 2.4 percent. Those performances indicate few investors
have taken the
bait on supposedly good values
This year's disappointment does not mean that investors should
throw in the towel on China as a value play.
"When an economy is as big as China's is now, you would expect
its growth to slow," said iShares Global Chief Investment
Strategist Russ Koesterich
in a note
. "In my team's opinion, China has reached the size where
investors should be focusing mostly on whether China looks cheap
relative to its fundamentals. In other words, as a maturing
economy, China is more like Microsoft today than Microsoft two
decades ago. While China's growth rate is still important, it
should be of secondary importance to investors, assuming it
Koesterich's Microsoft (NASDAQ:
) analogy is a relevant one because if recent data are any
indication, gone are China's halcyon days of 10 percent economic
growth, but that does not mean
such as FXI and MCHI cannot reward investors down the road.
Microsoft, now a value stock, has gained over 15 percent in the
past two years and the company's dividend has more than doubled
in the past five years.
Speaking of dividends, China is now the largest dividend payer
among emerging markets with a dividend stream of $27 billion,
according to WisdomTree
Use This ETF For China Dividend Growth
"When you view Chinese stocks from the value perspective, they
look cheap relative to other emerging markets and the broader
market," wrote Koesterich. "For instance, the MSCI China index is
currently trading at below 9x forward earnings, versus 10.6x for
the MSCI EM index and nearly 15x for MSCI World index."
The average P/E on FXI and MCHI is about 13, implying those
ETFs trade at noticeable discounts to the iShares MSCI Emerging
Markets ETF (NYSE:
) and the comparable Brazil and South Korea ETFs, just to name a
"At these valuations, Chinese equities look like a good
long-term value considering that it's still growing faster than
developed countries and other EM countries, including the rest of
the BRIC countries," said Koesterich.
Investors that are still looking for growth from Chinese
equities need not fret. This year's best China ETFs are those
with heavy exposure to Chinese tech stocks
. Those funds include the PowerShares Golden Dragon China
) and the Guggenheim China Technology ETF (NYSE:
). PGJ's P/E is almost 26.5, but the fund has surged 25.3 percent
For more on ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
Profit with More New & Research
. Gain access to a streaming platform with all the information
you need to invest better today.
Click here to start your 14 Day Trial of Benzinga