Own China For the Long Term
February 22, 2009 @ 11:13 am
I love the China ETF- FXI. I believe China has the ability to come out of the global recession far faster than we do, and this ETF is so oversold is pretty absurd. After all, China’s stimulus package of $600 billion is 20% of their GDP. There are many bridges, roads, schools, and lots of other infrastucture to build there. There’s no toxic mortgages, and the banks are in no trouble. China has lowered interest rates 5 times in the last 4 months, and the January lending rate for the banks was double 2008.
FXI puts you in the best position with the least risk to benefit. As a bonus you get a 3% cash dividend at the current price.
I had a buy on that one at $28, and a strong buy at $25. Today we closed at $25.15, so dip time is the time to pile in. The chart looks far better
than anything in US equities. Since making it’s all time low in late October, the lows are getting higher, and the highs are getting higher. From my
recommended entry level there have been several opportunities to trade out for $5 point gains in the last 3 months.
Comments and questions are welcome.
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Fxi may fall much more. It’s not cheap, trading 11 times suspect earnings. recommend EWH, trading 9 times earnings and 2.27 times book value.
Editor: I don’t agree that FXI is not cheap, but I do agree it could fall further. EWH (Hong Kong) is cheap too, but doesn’t have the upside of FXI as growth opportunities are limited. If it really is 11 times earnings, consider the following. The $600 billion stimulus package is 20% of GDP, and China can write the check. Their is a high savings rate, so know credit melt down or distressed banks. In fact, with the lower interest rates, Chinese banks originated double the loans in Jan of ‘09 vs ‘08. 7,000 factory closings are less than 1%. 25 million job losses are the lowest on their food chain- these are the people making $500 per month. Within the portfolio, the lowest growth rate is 10%, but there are a few companies growing at 40% or better with significant earnings. The market is over estimating the effect lower exports have on China, but that’s normal for this environment. Long term this is a great hold, but I don’t know how low it might go.
Comment by missie — 2/26/2009 @ 2:43 pm