Chinese Real Estate ETFs May Pose Opportunity

By Kevin Grewal

As China expects to lead the world in economic growth in 2010, some think the nation’s real estate markets pose an opportunity and will likely see appreciation in the coming year.

When comparing price-to-book ratios versus return on equity, a recent study indicated that Chinese real estate was the most undervalued when compared to other high growth nations like India and Hong Kong.  Additionally, some expert analysts state that the Chinese real estate sector has underperformed by nearly 30% when compared to the benchmark MSCI China Index.

On the negative side, Chinese property prices could face headwinds as a result of dampened growth.  This dampened growth could potentially result from the most recent steps taken by the government which has already raised bank reserve requirements to curb lending and tighten the credit markets.

Although real estate prices did inflate in 2009, they are expected to soften in the coming year and consumers are expected to start buying again.  In fact, Credit Suisse is bullish on the sector, in particularly property developers and construction and contracting.

Some diverse ways to access the Chinese real estate sector includes:

·         Claymore/AlphaShares China Real Estate (TAO), which solely focuses on Chinese real estate.  TAO closed at $17.69 on Monday.

·         Claymore/AlphaShares China All-Cap (YAO), which gives exposure to Chinese lenders China Construction Bank and Bank of China as well as construction and contracting giant China Overseas Land & Investment.  YAO closed at $24.66 on Monday.

·         iShares FTSE EPRA/NAREIT Dev Asia Idx (IFAS), which allocates more than 8% of its assets to Chinese real estate holdings.  IFAS closed at $28.68 on Monday.

When focusing on international real estate markets,  it is important to consider the inherent risk that they carry. To help mitigate these risks, it is important to implement an exit strategy which triggers price points at which an upward trend could potentially be coming to an end and enable one to preserve equity.

According to the latest data at, an upward trend in the mentioned ETFs could come to an end at the following price points: TAO at $16.89; YAO at $23.94; IFAS at $27.39.  These price points change on a daily basis as market conditions fluctuate and updated data can be found at

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