Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Covid, Debt and Precious Metals - 3rd Jun 20
Gold-Silver Ratio And Correlation - 3rd Jun 20
The Corona Riots Begin, US Covid-19 Catastrophe Trend Analysis - 3rd Jun 20 -
Stock Market Short-term Top? - 3rd Jun 20
Deflation: Why the "Japanification" of the U.S. Looms Large - 3rd Jun 20
US Stock Market Sets Up Technical Patterns – Pay Attention - 3rd Jun 20
UK Corona Catastrophe Trend Analysis - 2nd Jun 20
US Real Estate Stats Show Big Wave Of Refinancing Is Coming - 2nd Jun 20
Let’s Make Sure This Crisis Doesn’t Go to Waste - 2nd Jun 20
Silver and Gold: Balancing More Than 100 Years Of Debt Abuse - 2nd Jun 20
The importance of effective website design in a business marketing strategy - 2nd Jun 20
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like TRADE.com are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

How to Trade China Stock Market Sectors with ETFs

Stock-Markets / Chinese Stock Market Oct 08, 2009 - 10:19 AM GMT

By: Ron_Rowland

Stock-Markets

Best Financial Markets Analysis ArticleRight now, China is celebrating 60 years of Communist party rule. Most of the party-goers aren’t old enough to remember anything else, of course, but that isn’t stopping the nationwide festivities.

The sheer scale of China is mind-boggling! Just think about it …


  • 1.3 billion people — more than 4x the U.S. population …
  • 3.7 million square miles …
  • And borders that touch 14 other nations!
Communist China Turns 60.
Communist China Turns 60.

Back in the 1970s, the Chinese government figured out that the whole “central planning” thing wasn’t working so well. And communist ideology gave way to a pragmatic mix of state ownership and entrepreneurial capitalism.

It worked … China’s economy is now 70 times bigger than it was in 1978, when the economic liberation began. Depending on how you calculate, China is either the second or third largest economy in the world!

The vast industrial base, concentrated in the coastal regions, is transforming China. Farm workers from the massive interior are drawn by the relative high pay of factories. New cities spring up out of nowhere to house these workers and provide for their needs …

… And now many of the products that were once immediately shipped to the U.S. or Europe are staying at home, snapped up by China’s newly-prosperous middle class.

A middle class in a communist society? Hard to believe, yes, but there really is such a thing in China now. And there’s an entire younger generation that now knows what they’re missing — and they’re working hard to reach the next level.

China's new middle class is on a shopping spree.
China’s new middle class is on a shopping spree.

So if long-term rewards are what you’re looking for, China represents an amazing investment opportunity. But how do you play it?

First, recognize that anything China-related is going to be a roller-coaster ride, just as it has been the last few years. Therefore don’t invest unless you’re prepared for the bumps and jerks.

Second, know how much risk you’re taking. Individual Chinese stocks can deliver amazing profits, but they can be hard to trade. That’s why I think exchange traded funds (ETFs) are the best way for most investors to get involved in China’s hot market. And you have several choices — some diversified, some more specialized.

Here’s a quick summary:

Broad-Based China ETFs

U.S. investors can pick from four ETFs that track diversified Chinese stock market indexes:

  • iShares FTSE China Index Fund (FCHI)
  • iShares FTSE/Xinhua China 25 Index Fund (FXI)
  • SPDR S&P China (GXC)
  • PowerShares Golden Dragon Halter USX China Portfolio (PGJ)

Each of these ETFs takes a slightly different approach to constructing a China portfolio. FXI holds the 25 largest Hong Kong-listed companies that are available to foreigners. FCHI and GXC are similar but add some mid-cap stocks to the mix. They’re a little more diversified than FXI. All three are capitalization-weighted.

PGJ takes a somewhat different tack. First, it includes only Chinese stocks that have a listing on U.S. exchanges. Second, PGJ uses a tiered-weighting method, which results in the sector mix being a little different from the others.

Specialized China ETFs

If you want to get a little more aggressive, Claymore offers two China ETFs that have a tighter focus:

  • Claymore/AlphaShares China Small Cap Index ETF (HAO)
  • Claymore/AlphaShares China Real Estate ETF (TAO)

HAO is a good way to get exposure to small, fast-growing Chinese companies. These stocks tend to be less dependent on exports and more related to China’s domestic economy. TAO gives you an opportunity to profit from China’s real estate and construction boom.

China is growing  like crazy.
China is growing like crazy.

Inverse and Leveraged China ETFs

What if you think that China’s stock market has gone up too far, too fast, and is due for a quick drop? You may still be able to profit with ProShares UltraShort FTSE/Xinhua China 25 (FXP). This is a 2x leveraged inverse ETF. For instance, on a day when the underlying index goes down 2 percent, FXP is calibrated to move twice as much in the other direction — up 4 percent in this example.

On the other hand, if you’re bullish on the Chinese market, there’s the ProShares Ultra FTSE/Xinhua China 25 (XPP). This 2x leveraged “bullish” fund aims to give twice the daily move in the same direction.

The leverage factor for ETFs like these is reset daily, so the 2x math doesn’t always work for periods longer than a day. In other words, FXP and XPP are best used as tools by short-term traders, but if your timing is right you can make big profits from them.

Chinese Currency ETFs

If you want to bet on China’s currency, the renminbi (also called the yuan), you can do it with these two instruments:

  • Market Vectors Chinese Renminbi/USD ETN (CNY)
  • WisdomTree Dreyfus Chinese Yuan Fund (CYB)

There’s one key difference between the CNY and the CYB: CNY is actually an exchange traded note (ETN), not an ETF. Practically speaking, ETNs work much the same way as ETFs, but they’re actually a form of debt instrument. I wrote about the unique risks of ETNs earlier this year in my Money and Markets column.

Chinese law prevents the funds from directly investing in the renminbi, so they hold currency derivatives known as nondeliverable forwards. These are similar to futures contracts, which reflect a market’s expectations. As a result, these funds might not perfectly track the yuan.

As you can tell, there are plenty of ways to invest in China’s stunning growth story. I’ve only covered a few of them here, and ETF sponsors are planning many more. Do your research first, but don’t overlook China. The opportunity is too big to pass up!

Best wishes,

Ron

P.S. I cover China and other international ETF trends in my 21st Century Superpower Trader premium service. Subscribers receive specific buy and sell recommendations for the fastest-moving global markets. Follow this link for more information.

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules