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.
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.
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