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How to Invest in China’s Turbo-Charged Economic Recovery

Stock-Markets / China Stocks Mar 25, 2010 - 10:46 AM GMT

By: Tony_Sagami

Stock-Markets

Best Financial Markets Analysis ArticleI’ve been regularly and consistently telling you that the Chinese economy is doing much better than the mass media and Wall Street “experts” have been telling you.

It has taken them a long time, but those experts are starting to come around and believe in the economic growth miracle that is going on in China.


Once a quarter, the World Bank takes a look around the globe and re-evaluates the major economies. What it saw in China impressed it because the World Bank upped its forecast for China.

Last November, the World Bank predicted that China would grow its economy by 8.7% in 2010. Now the World Bank is looking for 9.5% GDP growth instead.

“In China the economy has held up very well during the global crisis and growth prospects for this year and next year remain quite good,” Louis Kuijs, a World Bank senior economist based in Beijing.

The World Bank wasn’t the only organization to up its expectations. The highly-if-not-overpaid economists at UBS also upgraded their 2010 China growth forecast from 9% to 10%.

Let’s put those two forecasts into perspective. China grew by 8.7% in 2009, so both the World Bank and UBS expect the economy to accelerate and get even better.

The reason for the acceleration is a strong recovery in the manufacturing and export business. China’s domestic consumption has been very strong, but Chinese exports tanked when the U.S. and Europe muddled through the financial crisis.

The export business is back on track and here’s how you can tell. In 2009, China had a current account surplus (exports – imports = current account surplus or deficit) of $284 billion.

Many expect a strong recovery in manufacturing and exporting to return China’s economy to double-digit annual growth.
Many expect a strong recovery in manufacturing and exporting to return China’s economy to double-digit annual growth.

The World Bank expects that surplus to balloon to $304 billion in 2010 and $341 billion in 2011. Those gigantic surpluses are going to add to China’s war chest of cash that now stands at $2.4 TRILLION and projected to hit $2.8 trillion by the end of this year and $3.3 trillion at the end of 2011.

China will have more than enough cash to continue to fuel its economic growth goals and on its way back to the breakneck growth that produced a 130% annual stock market gain in 2006 and nearly 97% gain in 2007, respectively.

I say that because the corporate profits — the real driver of stock market prices — are already taking off. The Chinese government just announced that the profits at major state-owned companies increased in the first two months of 2010 by 89% over the same period last year.

Of course, those are state-owned enterprises, so you have to be a little skeptical of anything that comes out of any government’s mouth. But the profits at China’s 500 largest publicly traded companies are 22% higher this year over the first two months of last year.

Those rising profits are going to send Chinese stock prices higher. Much, much, much higher.

Last week, I wrote about several China-focused exchange traded funds (ETFs) that capture the performance of the broad Chinese stock market. This week, I want to introduce you to some more target sector ETFs that can help you zero in on the specific industries.

Global X China Financials (CHIX) largest holdings include: China Life, ICBC Bank, China Construction Bank, Bank of China, and CITIC Bank.

Global X China Industrials (CHII) top five holdings are: China High Speed Transmission, Shanghai Industrial Holdings, China Shipping Development, Weichai Power, Anhui Conch Cement. NOTE: Asia Stock Alert subscribers own Anhui Conch Cement.

Global X China Consumers (CHIQ) Yuran Food, Li Ning Company, Denway Motors, Dongfeng Group, and Tsingtao Brewery are the largest holdings. NOTE: Asia Stock Alert subscribers already own Tsingtao Brewery.

Global X China Materials (CHIM): 66% of the fund is investing in Metals & Mining and 34% in Chemicals. Top holdings include Aluminum Corporation of China, Angang Steel, Fufeng Group and Shougang Concord International.

Global X China Technology (CHIB) owns Ctrip.com, Tencent Holdings, Longtop Financial Technologies, Sina Corporation, and Foxconn International.

Global X China Energy (CHIE) includes some of the largest names in the global oil business: China Shenhua, Sinopec, CNOOC, Petro China as well as China Coal

Claymore China Technology (CQQQ): This fund is quite different than the Global X Technology ETF. Its top holdings include Bidu.com, BYD Corporation, Netease.com, Alibaba.com, and Sina.com.

INDXX China Infrastructure Index (CHXX) offers exposure to China’s infrastructure sector with Real Estate Management & Development (22.7%), Metals & Mining (15.2%), Construction & Engineering (14.9%), Electrical Equipment (11.7%) and Construction Materials (9.3%).

Look for the Chinese yuan to appreciate against the U.S. dollar.
Look for the Chinese yuan to appreciate against the U.S. dollar.

Lastly, if you want to bet (a very good bet in my opinion) that the Chinese yuan will appreciate against the U.S. dollar, there are two currency ETFs to consider: WisdomTree Dreyfus Chinese Yuan (CYB) and Market Vectors Chinese Renminbi/USD ETN (CNY).

Statistics can always be twisted but it is crystal clear to me that China is going to grow by three or four or five … or more … times the pace of the U.S. economy.

I don’t say that because of the World Bank, the International Monetary Fund, or any Wall Street research reports. I say that because I’ve personally traipsed all around China, visited factories, shipping ports, warehouses, retailers, and talked to anybody — taxi drivers, janitors, construction workers, waiters, cashiers, policemen, housewives — that would give me the time of day.

I do my own boots-on-the-ground research and what I’m finding is an enthusiastic optimism from Chinese about their individual situation and the country that they are so fiercely proud of.

As an investor, you have to ask yourself which part of the world deserves your investment dollars. The slow-growing U.S. run by politicians who spend trillions like a teenager spends an allowance or in the most rapidly growing, dynamic economy in the world?

Bet on China. You’ll make a bundle.

Best Wishes,

Tony

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