An ETF To Suit China's Economy

This is a critical time for China. In the mid to long-term, it wants to move away from an export oriented economy and time will only tell if the country is ready for this -- and if the government can handle the delicate transition appropriately.

I am confident that it can ultimately achieve this, so China ETFs look sound as a small international component to a diversified long-term portfolio. It would behoove even long-term investors to try and buy at any low dips going forward though, which I suspect still could occur.

Also, as opposed to the popular FXI, I would recommend that investors choose Claymore/AlphaShares China Small Cap(HAO). That's because out of the China funds, its companies would benefit most from domestic consumption, the expansion of which is a top priority for the government. HAO's chart also looks less bearish than FXI's currently.

In the near term, the government has an asset bubble concern that may prevent it from extending stimulus measures and we saw last month how cranky the markets got when credit tightening and stimulus reduction was a looming issue.

Also, now coming into play thanks to Greece, will be a potentially extended depression in the value of the euro, which, although China has done a good job spurring domestic and regional demand, will hurt exports and the bottom line of its economy this quarter.

-- Written by Don Dion in Williamstown, Mass.

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