How to Invest in China with Chinese ETFs

China
China is the second largest economy in the world and growing. They have an increasing middle class that want to buy consumer goods. Adding Chinese ETFs to your portfolio is a good way to diversify yourself into an emerging market. Here is a comprehensive list of Chinese ETFs, this also includes Hong Kong.


China is considered one of the emerging BRIC countries. BRIC stands for Brazil, Russia, India and China. There are numerous opinions or is it confusion about the Chinese economy. Is there an inflation problem? Is construction going to continue?

When looking for Chinese ETFs to invest in, also look at the volume since you do not want to be stuck in an ETF that has low volume and might be hard to sell or has a wide price range.

Large Cap Chinese ETFs


  • iShares FTSE Xinhua China 25 Index (FXI) is the largest Chinese ETF, has 90% of its investment in 25 of the largest Chinese companies.
  • SPDR S&P China (GXC) is a diversified portfolio of China’s large companies including Baidu, China Construction, China Mobile, Industrial and Commercial Bank of China and CNOOC.
  • PowerShares Golden Dragon Halter China (PGJ) is another good diversified Chinese ETF that invests in large cap Chinese companies like Baidu, PetroChina and China Telecom. It invests 25% in technology, 17% in energy and 15% in communication services.
  • iShares FTSE China (FCHI) corresponds to the underlying FTSE (Hong Kong listed) China Index and invests in large and mid-cap Chinese companies including China Construction Bank, Bank of China and China Mobile.
  • Guggenheim China All-Cap (YAO): Even though it says all-cap, looking at Morningstar, it looks like they invest in mainly large cap Chinese companies. This Chinese ETF is nicely diversified throughout all of the sectors with 29% in financial services, 13% in energy, 13% in technology, 11% in basic materials and 10% in industrials.
  • Market Vectors China (PEK) corresponds to the price and the yield of the CSI 300 Index. This ETF is different in that it doesn’t actually buy the shares of these companies. According to their web site, PEK invests in swap and derivatives that have characteristics that are substantially identical to the China A-Shares stocks in the index.

Small and Mid Cap Chinese ETFs


  • Guggenheim China Small Cap (HAO) is rated 4 stars by Morningstar that invests in mid cap Chinese companies with 26% invested in industrials, 19% in consumer cyclical and 16% in basic materials.
  • iShares MSCI China Small Cap Index (ECNS) is diversified across numerous industries and companies that include Digital China, Kingdee International Software, China Everbright Industries and West China Cement.

Chinese ETFs by Sector


If you are interested in just a sector of the Chinese economy, there is a Chinese ETF for every sector. Be aware that some of these ETFs have rather low volume.

  • Global X China Financials (CHIX) invests in 25 Chinese financial companies that have their main operations in China.
  • Global X China Technology (CHIB) invests in Chinese technology and internet companies like Baidu.com and China Unicom.
  • Claymore China Technology (CQQQ) which invests in many of the same Chinese technology stocks as CHIB does.
  • Global X China Consumer (CHIQ) is a good Chinese ETF to own since it invests in what the Chinese middle class will be buying. Items like food, autos and retail and consumer services.
  • EGS Shares China Infrastructure (CHXX) invests approximately 75% of its money in basic materials, industrials and real estate companies.
  • GlobalX China Energy (CHIE) invests 65% in Chinese utility and energy companies and another 21% in basic materials.
  • GlobalX China Industrials (CHII) invests in 90% in basic material and industrial Chinese stocks.
  • GlobalX China Materials (CHIM) has 92% invested in basic materials. Chinese companies like China Blue Chemical, Zhaojin Mining and CITIC Pacific.
  • Guggenheim Alpha Shares China Real Estate (TAO) invests in real estate companies not only on mainland China but also in Hong Kong and Macau. The breakdown of the real estate companies they invest in are large and mid cap with about 6% invested in small cap companies.

Shanghai China
Shanghai, China

Leveraged and Shorting Chinese ETFs


There are ETFs that you can buy to short the Chinese stocks if you feel that is the direction the Chinese stock market will go. There are also leveraged ETFs that try to get 200% and 300% the daily index performance. You should completely understand leveraged and shorting ETFs before investing in these.

  • ProShares Ultra FTSE Xinhua China 25 index (XPP) corresponds to twice (200%) the daily performance of the FTSE/Xinhua China 25 Index.
  • Direxion China Bull 3X (CZM) is a tripled leverage ETF and tries to correspond to 300% of the daily price performance of the BNY China Select ADR Index.
  • ProShares Short FTSE China 25 (YXI): This ETF seeks daily results that correspond to the inverse or opposite of the FTSE/Xinhua China 25 Index.
  • ProShares UltraShort FTSE/Xinhua China 25 Index (FXP) is the same as YXI except it seeks 200% or twice the inverse of the underlying index.
  • Direxion China Bear 3X (CZI) is a triple leveraged shorting or bear market ETF that seeks daily results that are 300% opposite of the price performance of the BNY China Select ADR Index.

Chinese Currency ETFs


  • WisdomTree Dreyfus Chinese Yuan (CYB) is an ETF that seeks returns based on money market rates and changes in the value of the Yuan or Renminbi relative to the US dollar.

Hong Kong ETFs


Hong Kong is a part of the Peoples Republic of China or known as a Special Administrative Region of China and has its own currency and stock market.

  • iShares MSCI Hong Kong Index (EWH) has an expense ratio of .53% and tracks the prices and yields of stocks traded on the Hong Kong exchange. This is a good ETF for a diversified holding of Hong Kong companies.

Taiwan ETF


Not a part of the Peoples Republic of China, Taiwan also has a growing economy in the region.

  • iShares MSCI Taiwan (EWT) invests in large cap companies in Taiwan such as Taiwan Semiconductor, Hon Hai Precision, Formosa Plastics and HTC Corporation. At this time, EWT invests 55% in technology companies of Taiwan.
  • IQ Taiwan Small Cap (TWON) invests in small cap companies in Taiwan. They invest 53% in technology and 21% in consumer cyclical stocks. This fund currently has low volume.

Asia ETFs ex-Japan


There are numerous other ETFs where you can get exposure to Chinese stocks that include other Asian countries except Japan. If you are interested in Japanese stocks you can read The Guide to Japanese ETFs.

Conclusion


Before investing with any of these Chinese ETFs, you should research them thoroughly so you know exactly what you are buying. If you invest in more than one of these Chinese ETFs, make sure you are not overlapping and investing too heavily in one stock since many of these funds hold the same stocks.

Copyright © April 2011 Sam Montana

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