How Components of China’s Economy Compare to the Whole

Chinese Flag in Shape of China

by: Doug Fabian

We featured FXI, a general Chinese exchange-traded fund (ETF), a little more than a month ago, and that fund’s upward climb warrants us looking at other ETFs focused on that huge emerging market. To that end, today’s ETF Talk will introduce you to two ETFs, with each fund tracking different areas of China’s market: small caps and the consumer.

Guggenheim China Small Cap ETF (HAO) traces the results of an index that follows publicly traded small capitalization companies based in mainland China. In other words, HAO profits on the success of smaller publicly traded Chinese companies. While this fund is about even this year, losing 1.43%, it has just climbed back from a big April-May tumble. Historically, HAO has bounced back strongly from midyear declines to close out each year. It also offers a dividend yield of 2.16%.

HAO_072314

While Chinese small caps have done well in recent weeks, companies that serve China’s consumers generally are having a rough year. Global X China Consumer ETF (CHIQ), a non-diversified fund, follows the results of an index that measures the equity performance of investable companies in the consumer sector of the Chinese economy. This ETF has lost 7.28% so far in 2014, mostly in successive plummets during the first half of the year. Despite the lack of strength in the Chinese consumer sector, the chart below shows CHIQ starting to recover from its early-year lows. CHIQ’s yield is 1.03%.

CHIQ_072314

As the preceding charts show, the overall Chinese market, as represented by FXI, has been trending upward, but this pattern does not extend to every sector in China. Small caps are mirroring the upswing, but consumer stocks have not followed in the recovery. My hope is that by delving into a general trend, you can identify sectors that have begun to ascend and others that could rise next.

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If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

In case you missed it, I encourage you to read my article from last week about emerging market opportunities in Asia. I also invite you to share your thoughts below.

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