For the bulk of 2012, it has been troublesome economic data
that has kept a lid on Chinese equities and the corresponding
ETFs. However, Chinese data points, along with stocks there, have
improved in recent weeks. The latest sign is the October China
HSBC Flash Manufacturing Purchasing Managers Index, which
That is good enough for the best reading since April and
combined with rising retail sales and third-quarter GDP growth of
7.4 percent could be reason enough for more investors to become
with already surging China ETFs.
Russ Koesterich, iShares global chief market strategist,
advocates an Overweight rating on the world's second-largest
economy. In a
new blog post
, Koesterich notes the most dire of scenarios many predicted for
China's economy has not come to pass.
"Our expectation is that Chinese growth has probably slowed to
around 7.5% - 8%," he wrote. "We believe that the more dire
predictions of a Chinese hard landing appear less likely and
recent market selling is overdone."
With it becoming more apparent the hard landing so many had
called for has been avoided, China ETFs have soared in recent
weeks. In the past month, the iShares MSCI China Index Fund
) and the Guggenheim China Small-Cap ETF (NYSE:
) are both up nearly 10 percent. The iShares FTSE China (HK
Listed) Index Fund (NYSE:
) has popped nearly nine percent. The iShares FTSE China 25 Index
), the largest China ETF by assets,
has been a "laggard" with a gain of just six
Those ETFs and others may have more room for upside because,
as Koesterich notes, Chinese equities are inexpensive on a
"Chinese stocks are down a stunning 66% from their 2007 top,"
wrote Koesterich. "Chinese equities are now trading at
approximately 1.3 times book value and less than nine times next
year's earnings. On a relative basis, the Chinese stock market
has never looked cheaper. Historically, Chinese stocks traded at
a 56% premium to other emerging market (EM) countries, but today
they are trading at a 10% discount."
The compelling valuations apply to China ETFs as well. The
iShares MSCI Emerging Markets Index Fund (NYSE:
) sports a price-to-earnings ratio of 17.3 and a price-to-book
ratio of three,
according to iShares data
By comparison, FCHI trades at 12.7 times earnings and with a
price-to-book ratio of 1.65. MCHI goes for 14.7 times earnings
with a price-to-book ratio of 2.5. FXI is cheaper than both at
12.5 times earnings and a price-to-book ratio of 1.55.
Chinese small-caps, as measured by HAO, are even cheaper. That
ETF has a price-to-earnings ratio of just 7.8 and a price-to-book
ratio of one,
according to Guggenheim data
"While Chinese growth is unlikely to revert back to the glory
days of 2010, when the economy expanded by over 10%, it looks
like current valuations now more than reflect the slowdown in
growth," said Koesterich.
niche China ETFs have gotten in on the act
in recent weeks. The EGShares China Infrastructure ETF (NYSE:
) has surged 9.3 percent in the past month while the Global X
China Consumer ETF (NYSE:
) is up 5.3 percent.
Slumping retail sales in China during the first half of 2012
punished CHIQ, sending the ETF tumbling by approximately 31
percent from early March through late July. CHIQ's current
price-to-book ratio is 1.62.
Buoyed by China's infrastructure stimulus plans and a
strong technical picture
, CHXX has rebounded from its 52-week low set in early September.
Even with that impressive bounce, CHXX trades at just 8.4 times
trailing earnings with a price-to-book ratio of 1.1.
For more on China ETFs, click
(c) 2012 Benzinga.com. Benzinga does not provide investment
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