Is Now The Time To Buy A China ETF?

Chinese stock markets and the corresponding China Exchange Traded Funds (ETFs) are approaching 2009 lows, as China’s economy “slows” to seven to eight percent growth.  While many traders and investors are leery of buying ETFs when stock markets are down, buying a China ETF while the Chinese stock markets are likely at their low points can be a profitable way to play the Chinese growth story.

The reason why many traders and investors want to buy a China ETF is because China is the most populated country in the world and is experiencing tremendous growth, as the country modernizes and hundreds of millions of Chinese seek to raise their standard of living.  Despite the recent slowdown in Chinese economic growth, the long term prospects for continued double-digit economic growth in China are good.  As a result, a China ETF should appreciate nicely, as this growth translates into higher earnings for Chinese companies that trade on the Chinese stock exchanges.

Choosing A China ETF and Understanding The Risks

There are a number of China ETFs that focus on different aspects of the Chinese economy.  While not a complete list, the following are a sampling of some of the most widely traded China ETFs.

• iShares FTSE China 25 Index Fund (NYSE:  FXI) is the most widely traded China ETF, and is considered to be the cornerstone of the China ETF market.  FXI invests in the same companies that are in the FTSE China 25 Index, which contains twenty-five of the most liquid and largest Chinese companies that trade in the Chinese equity markets.
• SPDR S&P China (NYSE:  GXC) is a China ETF that offers relatively broad exposure to stocks that trade in the Chinese equity markets by investing in stocks in the S&P China BMI Index, which includes over 150 companies that are located in China.
• Market Vectors China ETF (NYSE:  PEK) is a China ETF that offers broad exposure to Chinese stocks by replicating the CSI 300 Index, which consist of 300 publicly traded Chinese companies that trade on the Shanghai and Shenzhen stock exchanges in China.

There are two main risks associated with buying a China ETF:  (1) the Chinese economy falls further into a slump and (2) the economic numbers reported by the Chinese government are to be proven inaccurate and a major downward revision to Chinese growth occurs.  These China investment risks have been around for a long time.  While they are valid investment risks, so far they have not occurred, and all signs point so continued rapid Chinese economic growth in the coming years and decades, which should bode well for traders and investors that invest in a China ETF.

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