By Kevin Grewal
Despite fears of a real estate and stock bubble, record foreign exchange reserves, the possibility of inflation and political obstacles, China still remains attractive and for good reason.
Many suggest that China’s massive government stimulus package and the decision to allow the nation’s state-owned banks to lend freely resulted in easy credit and easy money which further drove appreciation in both real estate and the nation’s stock market.
On the positive side, it appears that the Chinese government has realized that a potential threat is prevalent and has taken measures to alleviate the situation. Most recently, Chinese authorities told some banks to curb loans and the Chinese central bank ordered state-owned banks to set aside a bigger chunk of their deposits as a reserve against failed and deteriorating loans.
Additionally, genuine demand for residential and commercial real estate is expected to increase with the expected growth of incomes, growth in the Chinese middle class and overall expansion of major cities. This uptick in demand, combined with the government’s efforts will likely weaken fears of a significant real estate bubble.
A third reason China is likely to remain attractive is the recovery and expansion of its neighboring nations which is resulting in an explosion in exported Chinese goods. In fact, some economists suggest that China is stealing market share from Europe and Japan and will likely balloon to be the world’s second largest economy by the end of the year. This is likely to happen sooner than later if China keeps up its double digit growth pace that it witnessed at the end of 2009.
Lastly, increases in government spending on the social safety net and increased efforts to boost consumer credit are expected to encourage consumer spending.
In a nutshell, despite political and ethical issues, which are tempting companies like Google (GOOG) to potentially ditch China, the nation still offers plenty of opportunity. Some possible plays include:
- the Claymore/AlphaShares China Small Cap (HAO), which closed at $27.69 yesterday
- the PowerShares Gldn Dragon Halter USX China (PGJ), which closed at $24.49 yesterday
- the SPDR S&P China (GXC), which closed at $71.65 yesterday
- the Claymore/AlphaShares China Real Estate (TAO), which closed at $17.19 yesterday.
When investing in China, it is important to keep in mind the inherent risks that are involved. A good to way to minimize these risks is through the implementation of an exit strategy which triggers price points which represent abnormal price weaknesses in Chinese equities and indicate that further price weaknesses are likely to follow.
According to www.SmartStops.net, the price points for the previously mentioned ETFs are: HAO at $26.89; PGJ at $23.68; GXC at $69.82; TAO at $17.05. These price points fluctuate on a daily basis and are reflective of market conditions and volatility. Updated data can be found at www.SmartStops.net. These price points change on a daily basis as market conditions fluctuate and updated data can be accessed at www.SmartStops.net.