"I'm a Believer"
03/31/2006 12:00 am EST
"I just visited China, and now I’m a believer," says Steve Sjuggerud. "Until my visit, I thought the ‘China story’ was mostly hype. But after visiting, my feelings have changed completely." Here, he looks at a pair of China-oriented ETFs.
"I've spent the last dozen years or so traveling the world, looking for great investments. My first trip to Shanghai was over a decade ago. I was thoroughly unimpressed. Thankfully, it was the right way to be, as Chinese stocks (as measured by the MSCI China Index) are lower today than they were back then. On that trip, I felt Shanghai's best days appeared to be behind it.
"Today, however, 300 of the world’s Fortune 500 companies have operations in Pudong. It’s crazy. The amount of change that has taken place in the area is incredible. When I look out my hotel room window, all I see are high rises. I now believe Shanghai will be like New York or London within the next ten years— a major city for finance, business, and life.
"Is it a bubble? I don’t think we’ve reached the ‘bubble’ point when it comes to Chinese stocks. Foreigners have been burned so many times in China, they haven’t fully stepped up to the plate and bid Chinese stocks up to ‘bubble’ levels yet. One safe way to get a pile of Chinese stocks is through a US exchange traded fund.
"One such exchange traded fund is the iShares FTSE/Xinhua China 25 Index Fund (FXI NYSE). This is an unmanaged fund of major Chinese stocks that trades in the States. This fund’s top four holdings are PetroChina, China Mobile, China Petroleum & Chemical, and CNOOC. Together, these four stocks make up a whopping 33% of this fund.
"To spread the risk around even more, you could buy the PowerShares Golden Dragon Halter USX China Portfolio (PGJ ASE). This covers the same universe as the previous fund, however, it generally won’t let any holding take up much more than 5% of the fund. With this restriction, it must dip into the smaller Chinese companies that trade in the US. This could be good (because you’re spreading risk across more companies), or it could be bad, as the quality of the smaller Chinese companies that trade in the US is more questionable."