High Potential in China

China Stock Market HandbookRecently, more and more US investors are interested in the international market and are constantly looking for ways to add to their portfolio. By now everyone is aware of the potential growth in China. Chinese government passed a stimulus package worth $580,000,000,000 and has the potential to significantly stimulate Chinese market reaching majority of the middle class.
Therefore, I will be focusing on different ETFs targeting each sectors in the Chinese market. Please be aware that I am predicting the stock market to decline from current levels. So, adding any of these ETFs to my portfolio will not be a strategic move. My recommendation is to wait for a better entry point early 2010.

Technology Sector ETFs:

Global X China Technology ETF (CHIB)
Claymore China Technology ETF (CQQQ)

These two ETFs target internet companies such as BIDU, telecommunications firms such as CINA, and software and hardware manufacturers such as NTES. Did you know that China is the world’s largest cell phone and internet market? There are over 500,000,000 cell phone users and 250,000,000 internet users. But only 125,000,000 cell phones users and 70,000,000 have been reached by these Chinese companies, suggesting there is still a huge potential for growth in this market going forward. Also, the country’s middle class is expected to grow significantly in coming years because more than $50,000,000,000 has been allocated from Chinese stimulus package to technological advancements.

Industrials Sector ETFs:

Global X China Industrials ETF (CHII)

This ETF targets Industrial manufacturers, building materials firms, infrastructure groups, and shipping and logistics services companies. Most US investors do not realize that a significant portion of China’s $580,000,000,000 stimulus package has been allocated towards construction, railways, subways, and airports. In October of this year, China’s industrial output rose by more than 15% from a year earlier, and expansion in this sector is expected to continue to increase in coming years. Many economic forecasters anticipate that China will surpass U.S. as the world’s largest manufacturer by 2016. The potential here is too great for us to just ignore.

Consumer Sector ETF:

Global X China Consumer ETF (CHIQ)

This ETF targets beverage companies, automobile manufacturers, department stores, sports apparel companies. The consumer sector may take more time for it to develop compared to the technology and industrial sectors. In China, current consumer spending make up about 30% of China’s GDP. The Chinese President said several times that the government is focusing on expanding domestic spending. Given some time, consumer sector will also create a high potential for US investors.

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Anonymous said...

Hi Michelle:

I was looking at CHIB and CQQQ. It doesn't look like they are gaining much traction among investors since their launch in December, judging by the volume (about 8K daily in early February). What's your take on those? Do you think $15 and $25 (respectively) are good entry points?

Thanks! Andre

Michelle said...

Hi Andre,
Thanks for your question. In my opinion, it is not the right time to get into these two LONG positions. When I mean LONG, I mean at least 3-5 years. If you wait, I am confident there will be a much better entry point for these two etfs. Good luck!