Don't Write-Off China ETFs

Includes: BKF, EEB, FXI, GXC, PGJ
by: Tom Lydon

Emerging market volatility has swayed investors to look elsewhere for returns, however, valuations are looking cheap for focused exchange traded funds. Investment in the iShares FTSE China 25 Index (NYSEARCA:FXI) is a low-cost, effective way to gain exposure to the second largest economy in the world.

Over the past three years, GDP growth in China has posted around 10%, reports Augusto Fontevecchia for Forbes. After the U.S. unveiled that there will be another round of quantitative easing, analysts are certain China will announce a stimulus to compete. After all, central bankers around the world have been doing everything they can to support or ignite growth.

"Stimulus, they suggest, is warranted. And indeed it has been announced. In order to stabilize GDP growth, the NDRC (Beijing's planning agency) have approved a slew of highway and subway projects, along with power stations, wind farms, airports and other things, worth an estimated $158 billion, or 2.1% GDP growth," Fontevecchia wrote.

SPDR S&P China ETF (NYSEARCA:GXC) and Powershares Golden Dragon Halter USX China Portfolio ETF (NASDAQ:PGJ) are among the other ETFs indexed to China. WisdomTree China Dividend ex-Financials Fund (CHXF) is another interesting option that recently launched.

Barclays analysts warn that investors should not expect a huge spark in growth output in China. Reasons are because GDP growth is still over 7.5%, the jobs market is stable and inflationary pressure is looming. Inflation may be a more important issue for leaders to address rather than growth.

So far, FXI has lost 3.2% in 2012. Chinese equities are struggling with major companies in the red. For the near future, China's leadership plans on reducing exposure to foreign demand, while increasing domestic consumption.

China is a member of the so-called BRIC countries along with Brazil, Russia and India.

BRIC ETFs such as the Guggenheim BRIC ETF (NYSEARCA:EEB) and the iShares MSCI BRIC Index Fund (NYSEARCA:BKF) have had lagging performance this year.

iShares FTSE China 25 Index

(Click to enlarge)

Tisha Guerrero contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates.