If you are an investor or a trader, chances are that you would have discussed China, its economy and its impact on the world at least once every day within your close circle. Like it or hate it but you cannot ignore that fact that Chinese economy has been the fulcrum of most discussions in the recent past. China, which is considered the top most emerging economies of all the Bric nations, has definitely emerged as the most vibrant success stories of the financial domain. With emerging economies comes Infrastructure developments and upgrades and China, which is known to be the manufacturing hub of the planet is no exception. The Chinese government which recently pumped a massive $586 billion stimulus package knows this fact and are investing billions into infrastructure projects to become a dragon economy in the real sense of the world.
A good way to get in on the trend is with Indxx China Infrastructure Index (Ticker: CHXX) that covers the Chinese infrastructure sector. The IndXX China Infrastructure Index is a 30 stock free float adjusted market capitalization index designed to measure the market performance of equities in the Infrastructure sector of China. Infrastructure sector is as companies categorized as a part of 35 sub sectors as per the GICS classification. The sub sectors cover Construction & Engineering, Construction Materials and Utilities. The index consists of common stocks that are listed on Hong Kong Stock Exchange, New York Stock Exchange, NASDAQ and London Stock Exchange.
Index Methodology- To become eligible for inclusion, a company must be a common stock listed on Hong Kong Stock Exchange, New York Stock Exchange, NASDAQ and London Stock Exchange. It should be among the 35 sub sectors identified by the GICS classification and have an average daily cash volume of US$4 million in the month of January and June prior to consideration. The company should have a minimum free float of 10%. The Index is reconstituted annually on June 30th and will begin trading starting October 1st of the same year. The Index is rebalanced for corporate actions. If a constituent is removed from the Index, there will be no replacement.
The Fund seeks to achieve its investment objective by attempting to replicate the portfolio of the Underlying Index through investments in equity securities, including shares traded on local exchanges, American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”). The Underlying Index is a free-float market capitalization weighted stock market index comprised of a representative sample of 30 emerging markets companies that INDXX, LLC determines to be the representative of mid-market capitalization companies domiciled in China.
The China Infrastructure Index charges a net expense ratio of 0.85 percent and has an average market value of $8.3 billion. The top industries it invests in are real estate management and development, metals and mining and construction and engineering.
Top Ten Holdings: CHXX
China Communications Construction Co. 5.74%
China Telecom Corp Limited 5.74%
Aluminum Corp of China Limited 5.74%
China Railway Group Ltd. 4.78%
Sino-Ocean Land Company 4.47%
China Railway Construction Corp 4.41%
China National Building Material Co. 4.28%
Suntech Power Holdings Co. 4.20%
Jiangxi Copper Company Ltd. 4.19%
Huaneng Power International 4.10%
Chinese Infrastructure is directly proportional to its fast growing economy. For the past 22 years, millions of rural Chinese have streamed into the country's burgeoning cities in search of work and greater opportunity. At the end of 2008, just over 46% of China's population resided in urban areas. It took 120 years for the UK to achieve that level of urbanization; the US took 80 years and Japan took 30 years. Although China boasts large, modern cities like Shanghai and Beijing (in fact, at least 10 of China’s cities have a population in the 6-10 million range), many of these cities have subway systems with just two or three lines. Therein lies the opportunity. Infrastructure spending in China is expected to reach $35 trillion in the next 20 years. INDXX China Infrastructure Index (NYSEARCA:CHXX), recently launched by Emerging Global Shares, allows investors to harness these trends through a single exchange-traded fund. With access to local exchanges, the fund tracks a diversified basket of Chinese infrastructure outfits.
Some believe that a new bubble is forming in China’s real estate sector after real estate prices increased around 20% in 2009. The media may be focusing on China’s problems of the day, but China’s fundamentals look sound and the country’s related exchange traded funds (ETFs) may reflect conditions that are just right.
Infrastructure spending isn't just a Chinese story though-it's a global mega-trend as the strong pace of growth and urbanization continues around the world. Infrastructure funds are likely to be a good investment option for a number of emerging nations.
If you want to include China in your portfolio, it would make sense to have Infrastructure flower as one of the investing sectors in your global portfolio bouquet but also make sure you’re managing risk by having a stop loss at the ready.
Disclosure: No Positions