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3 “More” Reasons To Rethink Your China Allocation

07 April 2011 at 3:35 pm by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

Months ago, equity market “pros” pounded China mercilessly. China real estate was the next bubble to burst. Inflation was spiraling out of control. And¬†commodity stockpiling was proof-positive that China was dead in¬†the dry-bulk shipping water.

Well, some folks had a far different perception. For instance,¬†I spoke at the 4th annual Inside ETF Conference on “Accessing Asia and China.”¬†And on February 7, LIVE from the venue in Florida, I wrote the following:

“The MSCI China Index trades at 11.5x forward earnings, the lowest¬†forward multiple since 2004. With Hong Kong trading at nearly 18x¬†forward earnings, the disparity is¬†at or near a record… there are plenty of reasons to keep an eye on the SPDR S&P China Fund (GXC). I expect it to drop a bit further, possibly testing its 200-day moving average. A¬†pullback of 12%-14% from¬†GXC‚Äôs November peak is my anticipated entry point.”

With GXC shares hitting 84.48 in November,¬†savvy investors were able to acquire shares¬†at¬†or near 74 in the third week¬†of February. Since that time, it’s been a fairly brisk ride back towards the November highs.

GXC 50 200

Granted, those who follow me¬†already know¬†that I¬†lived in Asia for a combined 5 years; I have my biases.¬†Still, it’s not like I haven’t been bringing scores of facts to the discussion.

For example, I wrote another feature on China on March 7, 2011, exactly one month after my¬†February 7 feature.¬†(See¬†“3 Reasons Why China ETFs Will Roar Back To Life.” ) In essence, I addressed activity in China’s untapped A-shares, the country’s 5-year economic plan and the remarkable level of job creation.

Since March 7, SPDR S&P China Fund (GXC) is up 8.2%. The S&P 500 SPDR Trust is up 1.8%.

Today, on April 7, I’m writing what feels like a monthly piece… my third in a series. And while I might wait for¬†dip-buying opportunities to commit more money, I still encourage investors to consider how China might fit into their portfolios.

Here are 3 more reasons to give China another look:

1. Major brokerage upgrades. Citigroup, Credit Suisse, Goldman Sachs — the number of “buy China” brokerages continues to rise. Today, HSBC Holdings added themselves to the growing list. HSBC cited a 25% decrease from a year earlier in bank lending as evidence that credit¬†has cooled. And that’s exactly what the government set out to do with its fiscal and monetary tightening.

2. Remarkable profits, remarkable revenue. Collectively,¬†according to Credit Suisse, 1,400 mainland Chinese companies¬†have reported¬†38% year-over-year increases in profitability. Sales revenue? 34% growth.¬†And while it’s true that 3/4 of these companies may not be accessible through PowerShares Golden Dragon Halter (PGJ) or SPDR S&P China (GXC), investors might read the prospectus for Market Vectors China (PEK) to see if the Van Eck exchange-traded vehicle would work for them.

3. Downshifting to Neutral. The primary reason that investors began shying away from China was the country’s semi-aggressive monetary and fiscal tightening; that began last October. Yet the lengths that¬†China¬†has already gone to fight inflation¬†is also an indication that they are close to finishing up. Downshifting from a tightening stance to a¬†more neutral policy stance is a huge positive for Chinese equities.

You can listen to the¬†ETF Expert Radio¬†Show¬†‚ÄúLIVE‚ÄĚ,¬†via podcast or on your iPod.¬†You can review more ETF Expert features here.

Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. 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 disclosure details here.

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