At a robust growth rate of 15% that the country's banking industry saw in 2012, Investments in the Chinese Financial sector yet again beckon the foreign investors. The growth figures are almost five times higher than those from the American banking universe and the returns derived aren't too shabby. The Solactive China Financials index tracks a total of thirty six of the top Sino Bank Equity, evaluates the sector and its growth quite effectively and even offers participation in the form of an Index attuned China Financials ETF. The Solactive benchmark [Bloomberg ticker - CHIF] has delivered returns of 16.29% for the Year 2012 and the annualized returns since its inception in December 2009 are a little less than 2%.
Banks of China enjoy a definite edge over their counterparts because of the sheer numbers of consumers available to them and these numbers are still rising. The heavy economic growth of the last twenty years has changed the demographics in these parts of Asia, two decades of good business meant better payouts for the Chinese workers, businesses have grown drastically due to the aggressive and global demand for local products, the households have seen a major appreciation of their immovable assets amid this massive wave of globalization in China which exists even today has led to massive swell in the numbers of the middle classes, who now want to upgrade their life styles with the increased disposable incomes and wealth.
Credit card giant Master Card carried out a survey in 2010 to derive forecasts on the credit card users in China. As per the report net credit cards in circulation were to reach 230 million by 2011, which it already did and by 2020 the figure for these plastic units in use will be a whooping 900 million.
This is real growth of more than 400% in just nine years.
Another plus is a supportive state in the nation and the past year's growth wouldn't have been possible without a little help from the government. The top four banks of China boasted of a balance sheet in black largely owing to the central bank directives. Their loan rates were bloated as much as 30%, where as interests charged were 10% higher than the central bank's deposit rate, although these top institutions did consume a major chunk of bad debts from the LGFVs segment, but largely enjoyed profits in the wake of the new norms.
The bigger positive lies in the understanding of an investor who are seeking to indulge in the Sino Financial funds and equity, it is a simple realization that the buck does not stop here; the growth that has been seen in case of credit card will apply to all or at least most consumer products and the biggest purchasing and loaning activity will come from the first time owners of varied items like smart phone, cars, laptops and most primarily the new end users of the realty. A surge in the housing markets of China will not only justify the state's aggressive approach towards infrastructure, it will also account for most of the extended loans from the banks domiciled in the nation.
China, most analysts say will eventually outperform the rest of the BRIC and will surpass USA in terms of net GDP by 2027.
A good basis to this asset is a long positive outlook relying on bona fide business sense rather than the market frenzy, which is a common sight in the emerging capital markets. The projected growth is impossible without a good banking structure and that's what makes Invest China Financials Sector an interesting space to watch throughout 2013 and beyond.
Global X China Financials Fund [CHIX] is a true copy of the Solactive benchmark and the issuers charge an annual operational cost of 0.65%. CHIX ETF has delivered past year returns of 15.65% and in terms of assets it's a large cap heavy fund where blue-chip Chinese bank and REITs stocks account for a close to 50% of the total assets. Bank of China Ltd. H, Industrial and Commercial Bank of China and China Construction Bank are the top three assets amounting to a close to 10% of the holdings each.