Home > Stock Analysis

Olympics Are Over, But China Lives On

Posted: Sep 04, 2008 14:37 PM by Gregory S. Davis

Tickers in this Article: YZC, CEO, PTR, BACHF, LFC, CHL, GXC, FXI, PGJ

World record times from names like Michael Phelps and Usain Bolt will undoubtedly be forever linked to the 2008 Beijing Olympics. Investments in China - which have fallen from profit taking and exposure to a world of rising commodity prices for raw materials necessary to meet the fundamental needs of the country's 1.3 billion people - also should not be forgotten.

Get Free Stock Analysis By Email

Three China-focused Exchange-Traded Funds (ETFs) offer investors an opportunity to dollar cost average their way into the Far East. (Read Dollar-Cost Averaging With ETFs to learn more on this strategy.)

China Focused ETFs	Year to Date	Past 3 Years
SPDR S&P China (AMEX:GXC)	-29.68%	N/A
PowerShares Golden Dragon Halter USX China (AMEX:PGJ)	-30.99%	19.79%
iShares FTSE/Xinhua China 25 Index (NYSE:FXI)	-26.32%	28.13%
Data as of market close September 2, 2008

Common Thread
All three ETFs have China Mobile (NYSE:CHL) listed as their top holding. China Mobile recently reported the addition of 45 million new customers during the first half of the year, taking its total number of subscribers to 415 million. To put that number into perspective, consider that as of July the CIA World Factbook lists the total U.S. population at just over 300 million. China Mobile is banking on deeper penetration into rural areas of the country to continue its massive growth trajectory.

Upstart
The SPDR S&P China is the newest of the three ETFs and the smallest in terms of assets under management (AUM) with $152 million. More than 50% of its holdings are concentrated in financials and telecommunications. The financial holdings of GXC include China Life Insurance (NYSE:LFC) and the Bank of China (OTC:BACHF). With a net asset value (NAV) above $63, GXC is also the most expensive of the group.

Commodities Exposure
The PowerShares Golden Dragon Halter USX China is more than double the size of GXC with $436 million in AUM. The top 50% of its holdings are spread almost evenly across oil, gas and basic material companies including PetroChina (NYSE:PTR), CNOOC (NYSE:CEO) and Yanzhou Coal Mining (NYSE:YZC). With a NAV just over $23, it is the least expensive of the ETFs mentioned.

Financial Friendly
The iShares FTSE/Xinhua China 25 Index is the largest of the China-focused ETFs mentioned with over $6 billion in AUM. For investors who equate size with safety, this would be the best choice. Its top holdings are concentrated in finance and telecommunications like the GXC ETF. The difference between the two is that GXC has additional exposure to technology and consumer goods while FXI is more concentrated on financials. FXI's NAV falls between the two ETFs mentioned at $41.

Final Thoughts
Guessing the bottom for financials in today's market is a perilous task at best. A dollar-cost-averaging approach would allow investors to begin building their position in a post-Olympic China that still has the capacity and desire to grow.

If you're an investor who likes to understand how and why your investment products work, read An Inside Look At ETF Construction.

By Gregory S. Davis

Gregory S. Davis is an investment writer and consultant for his company G.Davis Capital Inc. His core methodology for choosing investments include patience, diversification and asset due diligence. Gregory is a graduate of the Wharton School of Business. He is also a board member of StoriesWork, a non-profit organization based in Durham, NC that uses storytelling to empower youth and individuals to utilize alternative dispute resolution tactics.

Rate this Article: Your Rating: Overall Rating: Vote Now!

MORE STOCK ANALYSIS