In terms of being there first! And enjoying the early bird advantage, Investments in material sectors of emerging economies, like China may lead to very lucrative returns. Currently discounted market valuations also aid in curbing the risk factor. Although, a wiser choice for a long term investor, one can even begin with small investments in China Material Funds, the procedure involved is more or less the same as with equities.
Why invest in China Material Sector?
The figures say for themselves! As a producer China is contributing close to 50% of the total world production of Cement, Steel & Iron Ore. For Aluminum & Copper these figures are close to 41%. Considering a low per capita consumption of these materials in China, there seems to be wide gap that needs to be covered.
The commodity sector of the country may itself create a huge demand for these industrial materials. The pace of urbanisation in China is one of the highest in the world [projected at close to 70% of the total population by 2030] this development correlates with the surge that the Chinese household income has seen.
This simply means more & more consumers [possibly larger than the total population of some of the developed countries together] may want to buy more cars, houses & every other commodity available in the open consumer markets.
China's Auto market is as of now bigger than that of USA, but its Current Automobile Ownership ratio to the country's citizens is 35:1000 [almost twenty times lower than America]. An already upward trend in the labour rates and higher per capita incomes may enable the spending power of the people. Materials like, Steel, Aluminum, may see good demands from Auto & Infrastructure Industry.
The Chinese companies engaged in the metal mining, steel and aluminum production & Cement Sector are likely to gain. Their up scaled production numbers will cater to the growing internal demand as well as their exports will also add on to their order sheets, especially at a time when China is facing international pressure to increase its raw mineral and ore exports.Investment in CHIM ETF may provide positive portfolio diversification.
Equity Traded Funds are emerging as a good choice for investments in China Material Industry, offering maximum liquidity & simple procedures. Though some Rare Earth Funds have given good returns, but they are not very liquid in America. A good choice may be a non diversified fund with a uniform allocation in key material companies. Basic material sector is the big bet here, thus any fund considered should have major allocations [at least 85%] in this sector.
Big corporations like Jiangxi Copper may show some interesting results. It is the largest copper producer in China & ranks among top three globally for cathode production.
Chinese material market may see some consolidation with big corporations further increasing their market share & net profits.
Due to its discounted price China Lumena New Materials Corp may be a unique play too.
The stock is hovering at HKD 1.6, much lower than its 52 week high [HKD2.240]. The company is major player in mining and manufacturing of natural Thenardite products & is a big scale producer & seller of PPS resin compound & fibre.
Money nestled in a fund like Global X China Material Fund [CHIM] saves you the hassle of individually tracking & picking stocks, rather it provides a uniform exposure to The China Material Sector, with more than 90% of the allocation for CHIM is in the Basic Materials.
Global X China Materials ETF [CHIM] tracks & is correlated to the benchmark Solactive China Material Index. Top five holdings [China Moleybdenum Co. Ltd, China Lumena New Materials Group, Jiangxi Copper Co. Ltd., Zhaojin Mining Industry Co. & Zijin Mining Group] account to more than 30 % of the total fund assets.