Chinese stocks have lagged behind North American markets this year. That’s partly because investors are concerned about collapses of Chinese reverse-takeover stocks (RTOs), like Sino-Forest. That concern has spilled over to even high-quality Chinese stocks.
RTOs bought bankrupt North American companies that were already listed on U.S. or Canadian exchanges. That bypassed the more rigourous initial public offering (IPO) process. Most are sound companies, but some, like Sino-Forest, have been accused of falsifying contracts and asset holdings.
Still, the long-term outlook for China, and Chinese stocks, is bright. One of the best ways to profit is through low-fee exchange-traded funds (ETFs).
Here are two Chinese ETF recommendations. One invests in all of the publicly traded Chinese stocks available to foreign investors. The other holds small-cap Chinese stocks. Neither fund holds reverse-takeover stocks.
SPDR S&P CHINA ETF $78.27 (New York Exchange symbol GXC; buy or sell through brokers; www.spdrs.com [1]) is an exchange-traded fund that aims to track the S&P China BMI Index. This index is made up of all of the publicly traded Chinese stocks that are available to foreign investors. Right now, it holds 153 stocks.
The $759-million fund’s top holdings are: China Construction Bank, 6.9%; China Mobile, 6.2%; Baidu Inc., 5.2%; Industrial & Commercial Bank of China, 5.1%; CNOOC, 4.7%; PetroChina, 3.9%; Bank of China, 3.7%; China Life Insurance, 3.5% and Tencent Holdings, 2.8%.
SPDR S&P China ETF was launched on March 19, 2007. It has a 0.59% MER, and yields 0.8%.
SPDR S&P China ETF is a buy for aggressive investors.
GUGGENHEIM CHINA SMALL CAP ETF $28.48 (New York Exchange symbol HAO; buy or sell through brokers; www.guggenheimfunds.com [2]) aims to track the AlphaShares China Small Cap Index. This index is made up of all investable Chinese stocks with market caps between $200 million and $1.5 billion.
The $296.7-million fund’s top holdings are China Shanshui Cement Group, 1.9%; Mindray Medical, 1.5%; BBMG Corp., 1.4%; Tsingtao Brewery, 1.4%; Great Wall Motor, 1.4%; Soho China, 1.4%; Zhaojin Mining Industry, 1.3%; Semiconductor Manufacturing International, 1.3%; Zhuzhou CSR Times Electric Co., 1.2%; and China Everbright, 1.2%.
As China’s economy matures, and consumers feel more protected by the expanding social-safety net, domestic spending should rise. The ongoing Arab revolution could also spur China’s leaders to boost spending on social programs and services to ease the growing gap between the rich and poor. This fund is well positioned to benefit from these trends.
The ETF was launched on January 30, 2008. It has an expense ratio of 0.70%, and yields 1.6%.
Guggenheim China Small Cap ETF is a buy for aggressive investors.