China - the world's second largest economy - faced difficult
times in 2012 thanks to a variety of issues that developing
nations were facing. European woes and a slow recovery in the
U.S. hampered the export businesses of the region to a great
extent and left many gloomy on the nation.
Beyond global issues, a domestic leadership transition and a
lower GDP growth rate also impacted the economic health of the
once economic all-star (
China ETF Investing 101
).
This situation caused many to look to other emerging markets
for exposure in the past year. Many investors shifted their asset
from China
ETFs
to other country ETFs which exhibited resilience to the uncertain
economic environment.
China posted a GDP growth rate of 7.5% in the third quarter of
fiscal 2012, which was growth rate in 2012. The GDP growth rate
is expected to be at 7.5% for 2013. For 2013, the economy is
expected to grow at the rate of 8% which is higher than the
expected growth rate for 2012.
Growth of 10.1% in industrial production is also an evidence
of the fact that the economy has bottomed out and is now turning
slowly towards the path of recovery. However, the pace of growth
will likely not match past performance. At least there is hope
that the economy will once more pick up steam, avoiding a hard
landing (
Three China ETFs Still Going Strong
).
Still, one discouraging factor regarding the economy is its
export growth of just 2.9% in November. This may be due to the
recession in Europe and Japan which resulted in dwindling demand
for Chinese goods offset somewhat by improving demand from the
U.S. However, the sequester and higher taxes may offer renewed
threat to exports to the U.S.
To prevent this from being an issue, the Chinese government is
taking measures to stimulate domestic demand in order to support
GDP growth in 2013.
With an overall improvement in the Chinese economy, albeit at
a slower pace, it is time to get back to Chinese ETFs. Chinese
ETFs, which floundered throughout 2012, have shown signs of
recovery on the back of a rebounding domestic economy (
Do ETFs Suggest that the China Panic is Over?
).
So, it could be time to take a closer look at any of the many
China ETFs currently trading on the market. Below, we have
highlighted four of the more popular options in the segment, any
of which could be an interesting way to target the Chinese
economy as we head into the Chinese New Year:
FTSE China 25 Index Fund (
FXI)
FXI is the most popular fund in the family of ETFs providing
exposure to the Chinese equity market. FXI is both rich in asset
base and volume. The fund manages an asset base of $7.3 billion
and trades at a volume level of more than 16 million shares a
day.
The fund's exposure to Chinese stocks is limited to a small
basket of 26 stocks. It does not therefore have a broad exposure
to the country's securities. Also, the fund is biased towards the
top ten holdings as more than 60% of the asset base goes towards
them.
Among individual holdings, China Mobile, China Construction
Bank and Industrial and Commercial Bank of China take the top
three positions. For investment in the fund, FXI charges a fee of
74 basis points from investors (
Three Financial ETFs That Avoid Big Bank
Stocks
).
The performance of the fund has been disappointing in 2011 as
it delivered a negative return of 17.7%. However, the fund has
remarkably recovered from the 2011 debacle and has delivered a
return of 3% over a period of one year.
Guggenheim China Small Cap ETF (
HAO
)
HAO taps the small cap securities of the Chinese market that
have market capitalization of a maximum $1.5 billion and a
minimum of $200 million. HAO provides investors a broad exposure
to the small cap securities of China.
The fund holds a basket of 226 securities of which 54% are mid
cap and 32% are small cap. This indicates that the fund does not
offer a pure play in small cap securities and has exposure to
even large caps and mid caps.
HAO has a diversified fund with just 15.6% of the asset base
invested in the top ten holdings. Among individual holdings,
Great Wall Motors takes the top spot, followed by Longfor
Properties and Sino Ocean Land Holdings (read
Try Small Cap ETFs to Gain from Chinese Domestic
Demand
).
Among sector holdings, the fund assigns double-digit
allocation to industrials, financials, consumer discretionary and
materials. Among others, the fund does not invest more than
9.58%. The fund delivered a return of 12% over a period of one
year.
SPDR S&P China ETF (
GXC
)
GXC also provides a broad exposure to Chinese securities
through a basket of 217 stocks. In this basket, the fund invests
an asset base of $969.8 million. For this the fund charges an
expense ratio of 59 basis points.
The fund is moderately diversified with 45.6% of the asset
base going towards them. Among individual holdings, China
Construction Bank gets the top most position with a share of
7.58% while the second and third positions have been assigned to
China Mobile and Industrial and Commercial Bank of China with
asset investment of 7.47% and 6.15%, respectively.
For sector holdings, the fund assigns double-digit allocation
to financials, energy and information technology. Among others,
the fund does not invest more than 9.69%. The fund delivered a
return of 6.3% over a period of one year.
MSCI China Index Fund (
MCHI
)
For exposure in large cap securities of China, investors can
look to invest in MSCI China Index Fund Profile. The fund invests
79% in large caps while the rest goes towards medium and small
caps (
Comprehensive Guide to Total Market ETFs
).
The fund is home to 137 large cap Chinese stocks in which it
invests an asset base of $802.9 million. It also offers liquidity
to investors as more than 100,000 shares trade in an average
day.
The fund is biased towards the top 10 holdings as more than
50% of its assets are invested in these stocks. Among individual
holdings, China Mobile Ltd is in the top spot with 10.03% of
assets invested.
This is closely followed by China Construction Bank and
Industrial & Commercial Bank of China. The expense ratio
comes in at 58 basis points annually.
Among sector holdings, financials takes the top position with
an asset investment of 38.6% while energy and telecommunication
take the other two spots with respective shares of 17.62% and
12.44% of the fund. The fund delivered a return of 8.7% over a
period of one year.
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ISHARS-FT CH25 (FXI): ETF Research Reports
SPDR-SP CHINA (GXC): ETF Research Reports
GUGG-CHINA SC (HAO): ETF Research Reports
ISHARS-MS CH IF (MCHI): ETF Research Reports
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