A regular income and long term associated value is leading to an increased risk appetite for the investments in China Energy sector and raking on the trend are the investors vested with the asset and its related pure play funds. A clear comeback of the power and energy industry in the country is evident from the returns procured through it in the last six months. Past half an year has seen, State owned large cap equity, China Shenhua Energy appreciating 18.76% on the Hong Kong Exchange with a market cap of 641 billion dollars and following the suit are the NYSE listed ADRs of various other heavyweights like Petro China and Sinopec Shanghai, which have given out short term gains of 16%-21% alongside managing a yield payout of more than 3%.
Global X CHIE ETF, which is a pure play on the class, has posted a return of 23.41% during the same time. The fund management, which is known for introducing several BRIC and emerging economy based ETFS have also confirmed CHIE's outperformance in contrast to its peers and the benchmark returns.
China is a large nation with an extensive demand for energy as it is stated to be the world's largest energy user. The power production and distribution along with infrastructure and finance industry is an economy main stay and will be the prime sectors attracting investor attention on the Dragon's come-back trail. At a time when Shanghai Composite Index seems to be stable and bottomed out, lower valuation of the energy stocks and their even lower PE ratio figures make up for a sound investment case.
Participants looking to diversify with these Asian energy domains should note that Shanghai Index is now operating at PE numbers of 11-13, a very safe figure considering that the historical data gives an average figure of 20+ and relevant PE levels during the 2008 crash in the Chinese capital markets were hovering around 41% for the composite benchmark.
The Government has a bright plan to encourage private investment in to the industry, in order to regulate this sector and speed up infrastructure investment and overall economic growth (Thereby reducing the possibility of losses in this sector mainly caused due to the subsidies, state monopolies and state control on the energy prices). Majorly dominated by the state firms, the conventional oil, gas and coal production is a big moneymaking business.
The policy makers are sincere in promoting the clean and green energy stance. But the high dependence on coal could prove to be a hindrance in the way of the aforesaid plan. Therefore calling in for cleaner forms of energy such as hydroelectricity, solar and wind power has been the latest norm. The shale gas sector especially has seen some aggressive development and today China owns 20% of the world's total Shale gas reserves. Government believes that success achieved in this sector could limit country's dependence on foreign oil and gas imports.
Private money is encouraged in the following areas - The exploration and development of energy resources, oil and natural gas pipeline construction, coal processing, oil refining and creating new and renewable energy sources. However solar energy still lags behind when it comes to economic viability. Thus most Solactive Index controlled Equity traded funds have reduced the solar stocks' kitty from 10% to 6.5%. This will prevent the diminishing returns on such funds.
China consumed 8.2million barrels of oil a day in 2012 and this increasing energy demand is reflected in figures such that about nine years ago the per capita oil consumption in the nation was 1.25 barrels and today it has grown to 2.5 barrels. The fast rate of urbanisation and double figure economy growths may easily transcend in to multi-bagger trades for the participants who will enter China Energy ETF at stable levels.
Global X China Energy ETF delivers as per the performance of Solactive China Energy Index, post the annual expenses of 0.65%. One thirds of the assets are shared among the top four stocks, which are China Petroleum [9.82%], Petro China [8.74%], China Shenhua Energy [8.63%] and publicly owned CNOOC Ltd [8.59%]. Many stocks with a +4% yield are also easily acquired from the Sino Oil and Gas Industry which accounts for more than 65% of the total holdings for CHIE ETF.