China ETFs Trampoline off Bear's Bottom

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (ETF Expert) -- The bear has been ruthless to investors in Chinese companies. For example, from an early November 2010 multiyear peak to an October 2011 valley, the iShares FTSE China 25 Fund (FXI) plummeted 36.6%.

Since those Oct. 3 lows, however, several facets of the Chinese "story" have become more favorable. First, analysts worldwide began upgrading China stocks on historically low valuations. (Note: Price-to-earnings ratios for most China ETFs are less than 10.)

Next, Germany and France showed solidarity for recapitalizing European banks, easing concerns of a worldwide recession. Third, the state-run Central Huijin Investment company, a subsidiary of China's sovereign wealth fund, began purchasing shares in the four largest Chinese banks, demonstrating China's commitment to supporting its stock market(s).

And there's more.

Resource-related ETFs, and resource-rich countries that export to China, have outpaced the vast majority other stock ETFs since the first Monday in October. Also, the Chinese government is well aware that it is the primary driver of global growth. It follows that there is a high likelihood that China will end its year-and-a-half long fiscal and monetary tightening, and choose to be less restrictive (possibly stimulative) in 2012.

Add it all up ... and you may find yourself becoming increasingly bullish on China. If not directly, you can always consider nations that provide goods and services to China. I've often expressed optimism for iShares MSCI Australia (EWA) and iShares MSCI Malaysia (EWM).

Here, then, are the percentage gains off the bottom for eight of the most popular China ETFs:

China ETFs Trampoline off the Oct. 3 Bottom (Through Oct. 12)
						Approx %
Guggenheim China Real Estate (TAO)						22.1%
Guggenheim China Small Cap (HAO)						19.3%
Guggenheim China All-Cap (YAO)						17.3%
SPDR S&P China (GXC)						17.2%
iShares FTSE China 25						15.3%
PowerShares Golden Dragon Halter China (PGJ)						15.2%
iShares FTSE Hong Kong Listed China Shares (FCHI)						13.6%
S&P 500 SPDR Trust (SPY)						9.6%

In truth, it may still be premature for weary investors to shift into enthusiastic overdrive. China ETFs still haven't risen above respective 50-day trendlines.

Nevertheless, any sort of satisfactory bank recapitalization in Europe would likely bolster emerging market equities more so than domestic equities. Emergers have genuine GDP growth. Their corporations have the most attractive valuations. And the dollar would likely fall in value relative to the world's emerging currencies, providing an extra lift to the unhedged emerging-market ETF space.

You can listen to the ETF Expert Radio Show "LIVE", via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a Web site that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert Web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.