China: Best Play Of The Year?

February 17, 2010

 

Real Estate Boom Or Bust?

As controversial as
China is as a whole, its real estate sector is even more of a lightning rod. In 2009, real estate prices on the mainland rose approximately 20 percent, putting them at a higher rate of growth than income levels. To many American and European investors, such statistics are an uncomfortable reminder of recent times past.

Once again, however, the big rise in property values doesn’t bother
Asia analysts as much as it does Western ones. Jonathan Anderson, a strategist for UBS in
Hong Kong, forecasts a temporary slowdown in the real estate sector, but no sounds of any bubble popping for some years to come.

“Using the historical experience from the Asian crisis countries … the ‘normal’ length of a bubble cycle with excessive leverage and overblown construction and real estate activity would be at least 4 to 5 years before things fell apart—by this metric it's still early days in China,” wrote Anderson in a recent research note.

Investors interested in playing the
China
real estate boom could do worse than the Claymore/AlphaShares China Real Estate ETF (NYSEArca: TAO), which provides broad-based exposure to Chinese real estate companies. TAO surged 60 percent last year on the backs of the real estate boom, and has more or less tracked the broader market year-to-date.

EWH also has a controversial focus in real estate, with roughly 25 percent of its portfolio weighted in real estate developers; Sun Hung Kai Properties is the fund’s largest holding, comprising around 8 percent of its portfolio. Of the broad-based funds, EWH is the only one with significant real estate exposure.

Other
China
ETF Alternatives

China investors have other toys to play with as well, including a number of funds from Claymore, such as the broad-based Claymore/AlphaShares China All-Cap ETF (NYSEArca: YAO), the small-cap-focused Claymore/AlphaShares China Small Cap Index ETF (NYSEArca: HAO) and the Claymore China Technology ETF (NYSEArca: CQQQ).

Indeed, Chinese technology has been a hot new corner of the market, with CQQQ going head-to-head with the Global X China Technology ETF (NYSEArca: CHIB). Chinese technology prices have held up better than most sectors in the recent sell-off, propelled by strong global demand for chip sets. In this sense, Lenovo and Semiconductor Manufacturing look like interesting holdings.

A
China fund it may be worth staying clear of however is the Global X China Consumer Fund (Nasdaq: CHIQ).

It is true that with a booming import market and economy in general, CHIQ holdings such as sportswear maker Li Ning should be able to make moves. But CHIQ is also heavily invested in automobile manufacturers, such as Denway Motors and Hong Kong-listed Dong Feng Motors. Contrary to forecasts stateside, for many local market participants, the automobile sector is one of the few overblown areas of the Chinese economy, with no substantial upside.

“We expect more car brands to face downward price pressure because of a demand slowdown and a 26% year-on-year increase in supply, based on aggregate production plans, as well as … rising raw material prices,” wrote Kate Zhu, an automobile sector strategist for Morgan Stanley in
Hong Kong, in a recent research note. “We do not expect industry margins to be maintained.”


China
investors can also choose from the Global X China Energy ETF (NYSEArca: CHIE), the Global X China Financials ETF (NYSEArca: CHIX), the Global X China Industrials (NYSEArca: CHII) and the Global X China Materials ETF (NYSEArca: CHIM).

The wide variety of choices in the
China market means investors control their own destiny. With a solid outlook for many parts of the Chinese economy, that may be a good thing indeed.

 

China ETF Choices

Fund

Ticker

Expense Ratio

Claymore/AlphaShares
China All Cap


YAO

0.70

Claymore/AlphaShares
China Small Cap

HAO

0.70

Claymore/AlphaShares
China Real Estate

TAO

0.65

Claymore
China
Technology

CQQQ

0.70

Global X
China
Consumer

CHIQ

0.65

Global X
China
Energy

CHIE

0.65

Global X
China
Financials

CHIX

0.65

Global X
China
Industrials

CHII

0.65

Global X
China
Materials

CHIM

0.65

iShares FTSE/Xinhua China 25

FXI

0.73

iShares FTSE China (HK-Listed)

FCHI

0.72

iShares MSCI Hong Kong

EWH

0.55

PowerShares Golden Dragon Halter USX
China

PGJ

0.60

SPDR S&P China

GXC

0.59

 

Find your next ETF

Reset All