China ETFs: High Growth Potential but Watch for Country's Internal Issues

Observers are noting the rise of China while other countries are languishing. Still, China’s economy and related ETFs could be hindered if the country’s domestic issues are not addressed.

Many politicians and intellectuals feel that the balance of power is shifting from the United States to China and some believe that the co-operation of the near-equals could solve world’s woes, according to The Economist.

China is the world’s biggest holder of American debt, which gives the country a unique hold on the American economy and reserve-currency status. Nevertheless, China will continue to lend to America and talks about the Chinese yuan becoming a world reserve currency may be just that.

With the Occident in a less-than-satisfactory state, Chinese companies may push to lift the trade barriers on high-technologies imposed by the West and start to court America’s high-tech industries. Perhaps, China may soon have a more permanent presence in the United States in areas such as the car industry.

Some Chinese leaders have voiced caution over the stability of China’s recovery. Yu Yongding, former adviser to China’s Central Bank, argues that wasteful spending on unnecessary infrastructure projects could drain the country’s fiscal strength, which would leave China with “no more drivers for growth.”

China is still grappling with many issues that need attention inside the country including rising protests, corruption, surging crime and leaders who fear their own citizens. If you’re invested in China, be sure to have a strategy for both entry and exit. It’s a country with tremendous growth potential, but it’s not without its issues, either.

• iShares FTSE/Xinhua China 25 Index (NYSEArca: FXI): up 57.3% year-to-date

• SPDR S&P China (NYSEArca: GXC): up 66.2% year-to-date

• PowerShares Golden Dragon Halter USX China (NYSEArca: PGJ): up 62.5% year-to-date

• Claymore/AlphaShares China Small Cap (NYSEArca: HAO): up 93.3% year-to-date

• Claymore/AlphaShares China All-Cap ETF (NYSEArca: YAO): up 7.1% in the last week; YAO launched on Oct. 19

Max Chen contributed to this article.

Comments

[jimmy46:]

It’s a country with tremendous growth potential,""""""

Everybody says that, but where will future growth come from?
The gutting of US manufacturing gave them growth for the last 25 years.
But that was a one time event,

Are americans going to consume twice as much 20 years from now?
Don't think so.

And I wouldn't count on internal consumption to be anything like the export market for growth.

Nov 13 07:05 PM

[Mad Hedge F...:]

edv I have long sat beside the table of Mckinsey & Co., the best management consulting company in Asia, hoping to catch some crumbs of wisdom. So I jumped at the chance to have breakfast with Shanghai based Worldwide Managing Director Dominic Barton when he passed through San Francisco visiting clients. These are usually sedentary affairs, but Dominic spit out fascinating statistics so fast I had to write furiously to keep up, sadly letting my bacon and eggs grow cold and congeal. Asia has accounted for 50% of world GDP for most of human history. It dipped down to only 10% over the last two centuries, but is now on the way back up. That implies that China’s GDP will triple relative to our own from current levels. A $500 billion infrastructure oriented stimulus package enabled the Middle Kingdom to recover faster from the Great Recession than the West, and if this doesn’t work, they have another $500 billion package sitting on the shelf. But with GDP of only $4.3 trillion today, don’t count on China bailing out our $14.4 trillion economy. China is trying to free itself from an overdependence on exports by creating a domestic demand driven economy. The result will be 900 million Asians joining the global middle class who are all going to want cell phones, PC’s, and to live in big cities. Asia has a huge edge over the West with a very pro growth demographic pyramid. China needs to spend a further $2 trillion in infrastructure spending, and a new 75 story skyscraper is going up there every three hours! Some 1,000 years ago, the Silk Road was the world’s major trade route, and today intra Asian trade exceeds trade with the West. The commodity boom will accelerate as China withdraws supplies from the market for its own consumption, as it has already done with the rare earths. Climate change is going to become a contentious political issue, with per capita carbon emission at 19 tons in the US, compared to only 4.6 tons in China, but with all of the new growth coming from the later. Protectionism, pandemics, huge food and water shortages, and rising income inequality are other threats to growth. To me this all adds up to big core longs in China (FXI), commodities (DBC) and the 2X (DYY), food (DBA), and water (PHO). A quick Egg McMuffin next door filled my other needs.

Nov 16 05:35 PM