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  • China Material Stocks Upbeat On State Support 0 comments
    Jan 14, 2013 5:00 AM

    State's adoption of the 12th five year plan lays clear emphasis on increasing the national consumption's contribution to the gross domestic product. The material sector of China will continue to receive good internal demands and is poised for an upward curve decoupling itself from the down swings that may occur due to foreign factors.

    Domestic consumption has enabled China to buck an otherwise down trend that was evident in most capital exchanges world wide throughout 2012. The increasing incomes and the growing numbers among the middle class segment of this Asian society is driving market aficionados' to buy into the aggressive China material sector, through direct equity exposure among the major corporations and acquiring Index controlled China Materials ETFs.

    Chinese economy is not anymore in the Top Gear mode. This current cool off, is partly owing to the deliberate doing of the policy-makers and a major decline on the export output numbers, again reconfirming the true state of the European and American fiscal health, as both are the biggest trading partners with China. The fourfold development of the last few years has largely occurred due to two factors, firstly exports and the second being domestic demand and consumption.

    The Chinese growth could slow down but long term growth logic is till intact, though both the driving forces seem to be dwindling in retort to the weak position of the European economy. The situation can benefit through simple policies that should include an increase in domestic demand, also the rising middle class (both in numbers and living standard) plays an important role here and private ownership of companies must be encouraged. The nation's government has shown willingness and taken proactive steps to regulate industries involved in exports.

    Recent estimates suggest China's total population to be about 1.34 billion and it only makes sense to invest with a market where one sixth of the human population goes for shopping. The disposable incomes have increased manifold for the Chinese household, who in wake of their fatter pay cheques are suddenly hungry for all kinds of finished products

    A foreign investor mulling on a portfolio diversification and exposure to materials division of the Dragon land may consider funds attuned to the Solactive China Materials Index. This asset class can deliver assured returns and evade risks especially if the United States recovery process remains on the right path and Euro-Zone does not surprise with more bad news. The benchmark relies heavily on the two main industries which are Chemicals (35.74%) and Metal and mining (64.26%).

    Though most ETFs charge an expense fees, but a wide spectrum asset allocation with a good liquidity scope covers up for the cost. A metal rally or a policy improvisation may trigger a sizable upturn in the sector and an improved USA post the fiscal cliff will also mean a good profit for Chinese material stocks. Furthermore the assets of the aforesaid benchmark boast of solid balance sheets and cash flows as they have to continuously fulfil the criteria as per the logic gates devised by the AG & G Structured Solutions, Germany for added safety of the investors.

    The lucrative dividends and share buyback opportunities represent such qualities, compelling the investors towards it. Global X China Materials sector provides the most basic and essential commodity that is varied raw materials to its numerous dependent industries such as metal and mining corporations, manufacturers and construction companies etc, the industry may grow fastest in China which is bound to emerge as a top developing capitalistic economy.

    Global X China Materials ETF (NYSEARCA:CHIM) correlates to the name sake Solactive index and charges expenses to the tune of 0.65%. Among the top five equities are Dongyue Group (6.24%), Citic Pacific (5.44%), Angang New Steel Company (5.37%), Shanghai Petro Company (4.75%) and Maan Shaan Iron and Steel (4.75%).

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