This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Steadier Ways to Play the China Rally

NEW YORK ( TheStreet) -- China funds have been rallying. During the past three months, the average China fund returned 12.1%, according to Morningstar.

Investors have taken notice of the strengthening environment, putting $2 billion into iShares FTSE China 25 Index ETF (FXI) this year.

Positive economic news has been spurring the market gains, says Morningstar analyst Patricia Oey. Retail sales in China have been climbing, growing at an annual rate of 14.5% in October. After slowing for months, industrial production growth has stabilized at a healthy annual rate of 9%.

Economists say the improving picture may be connected to a temporary increase in infrastructure spending this year. The government mandated the stimulus to strengthen the economy at a time when a new leadership team is about to take office.

Still, the data have helped to mute fears that the country could sink badly and face what economists call a "hard landing."

Bulls say the China rally can continue. After struggling in recent years, Chinese stocks sell at modest prices. The FTSE China 25 Index only has a price-earnings ratio of 8.5, compared to a figure of 14 for the S&P 500.

While the iShares fund is the largest China ETF, it presents considerable risks. The problem is the ETF has 58% of its assets in financials. Big holdings include China Construction Bank and Industrial and Commercial Bank of China. If China's banks ever sink, the fund would collapse.

Bears note that the financial sector faces substantial challenges. Many of the largest holdings in the ETF are state-owned banks. To stimulate the economy in recent years, the central government pressured banks to take on debt and assist borrowers that were not creditworthy. Now, the heavily indebted banks are faced with many loans that may never be repaid.

To obtain more diversification, consider pairing iShares FTSE China 25 with WisdomTree China Dividend ex-Financials (CHXF). The WisdomTree fund is broadly diversified with 13% of assets in consumer staples, 24% in energy, and 15% in telecommunications. By putting half of your stake in each of the two funds, you would have 29% of the assets in financials, a reasonable allocation.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
CHXF $0.00 0.00%
FXI $33.53 -1.58%
EWH $19.78 -1.70%
BIDU $194.24 4.40%
BXC $0.70 1.40%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs