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US Investors Under Invested in China

In almost Evangelical fashion I've been preaching about investing in US traded China companies all year, and the market is starting to warm up to the concept.

Why shouldn't the global investment world pay attention to China? The country represents the largest emerging consumer class in the history of the world, aided by a central government that is about as pro capitalism as it gets, isn't burdened by the bureaucracy of India, or the debt burden and aging population of the US.

Here's the numbers that have the world taking notice: GDP growth in China was muted this year compared to other year's, but nevertheless the strongest on Earth.

In Q1, China GDP was up 7.1%. In Q2, China's GDP improved by 7.9%. In Q3, China's GDP growth in Q3, disclosed earlier today, came in at a whopping 8.9%. There is growth, prosperity, and an emerging consumer class in China.

Exports are still declining, but the rate of decline has slowed quite dramatically.

Further fostering the growth argument are other micro statistics coming out of the Chinese economy. For example, in September the Chinese Purchasing Manager's Index (PMI) rose a whopping 54.3% over the same month in '08. Nationwide power consumption in September rose 10.24% to 322.41 billion kilowatts hours (hence, my energy saving company ideas).

We continue to do extremely well in China ideas with the exception of my one pre '08 crash idea. Here's a list in chronological order:

• FXI- 12/13/08 @ $25- now $44.53- net return 78%
• UTA- 6/7 @ $8- now $14.34- net return 79.25%
• NFEC- 6/10 @ $2.07- now $4.25- net return 105%
• LEGE- 6/21 @ $.35- now $.28- net loss 25%
• XSEL- 8/11 @ $1.70- now $1.75- net gain 3%
• TPI- 10/5 @ $3.60- now $3.96- net gain 10%
• CEU- 10/14 @ $5.60- now $5.88- net gain 5%
• CREG-10/19 @ $2.40- now $2.68- net gain 11.6%

A couple of ideas up there to focus on right now if you're looking for a money making opportunities are CEU which I love under $6, and CREG which I love under $2.75. Those two have the potential for huge upside surprises with their Q3 earnings releases.

I read an eye opening statistic recently. American investors, on average, have less than 2% of their investment capital committed to China. If you're looking for superiors returns, I believe that's a big mistake, and investors need to adjust their risk capital allocations.

I'm not saying you should take your core "safe" money and invest it all in China growth companies. However, in my view, at 50% of the capital you have set aside for more aggressive growth ideas should go to China based companies trading on US Exchanges. If you want growth, you have to put your money where you can find growth.

Now, let's say you want to invest in an easy, diversified portfolio of high caliber China stock with some of your "safer" money. Followers know I have been recommending China ETF "FXI" for all of 2009. It's an Exchange Traded Fund on the NYSE. If you own FXI, you own positions in the 20 largest companies in China and collect a rather small dividend.

Personally, I prefer the ETFs over mutual funds as the expenses are much lower (less than 1%), and they are more liquid. You simply buy and sell like any stock on the NYSE through any brokerage firm. If you want to be a little more aggressive, you can also buy on margin, which nearly doubles your returns (either gains or losses).

I published my first recommendation on FXI last December at $25. Today it's trading at $44.60 for a net gain of 78% (157% on margin). It's time to look at the new kid on the block, which is a more diversified way to invest conservatively in China equities.

This is a new China ETF that just opened for trading this week. I recommend for your "safe" growth investments- I believe it's going to be a big winner. Read on.......
 

YAO: Not the Basketball Player, the ETF

There's a new kid on the ETF block. No, it's not the basketball player YAO, it's a new, highly diversified ETF that I believe will make you significant returns over the coming months and years.

The Claymore/AlphaShares China All-Cap ETF (NYSE: YAO) opened for trading this week at $25.29. This ETF is a great way to invest in a more diversified portfolio vs FXI with its rather narrow mega large cap only approach.

In China "Yao" is a word that identifies 55 different and varied ethnic groups. In stocks, YAO represents 99 different stocks ranging from Bank of China LTD (7.16% of the portfolio) down to CHINA HUIYUAN JUICE GROUP (.07% of portfolio).

I particularly like the industry diversification. I'm a big believer in consumer oriented companies in China. So far, China Education Alliance (NYSE AMEX: CEU) and Universal Travel (NYSE AMEX: UTA) are on my recommended list, and I'm looking at several others. 

FXI provides no exposure to consumer companies aside from indirectly through the banking sector, but YAO does. If you want to see a list of the stocks in the portfolio, simply click here. Here's the breakdown of the portfolio sectors:

• Financials  34.87%
• Energy  17.89%
• Information Technology  11.61%
• Industrials  9.48%
• Telecommunication Services  7.87%
• Materials  5.88%
• Consumer Discretionary  5.24%
• Consumer Staples  4.11%
• Utilities  2.03%
• Health Care  1.02%

The chart, which goes back all of three trading days, is so far meaningless. Therefore, I won't bother putting it up. We'll have another look at it in a few months and see where we are.

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