Shovel Ready: China Infrastructure ETF One to Watch
Emerging markets infrastructure ETFs have seen better days, though it's hard to remember when. In the past year, the EGShares India Infrastructure ETF (NYSE: INXX) has lost more than a third of its value while the EGShares Brazil Infrastructure ETF (NYSE: BRXX) has tumbled almost 20%. The EGShares China Infrastructure ETF (NYSE: CHXX) ominously falls in the middle of this troubled trio with a decline of nearly 28%.
For now, we'll leave India out of the equation as that country's rising deficit and myriad other economic woes could prevent additional infrastructure spending in the near-term. And we'll leave BRXX out knowing that Brazil's turn as World Cup host comes up in two years and its date with Summer Olympics destiny comes up in four years, meaning the country will spend on infrastructure because it has to.
Perhaps the most compelling option among global infrastructure ETFs right now is the EGShares China Infrastructure. Why? The reason is simple. While many would argue that China's brand of communism, albeit of the benevolent nature, makes the country less than trustworthy politically speaking, the world's second-largest economy can be trusted to use infrastructure projects as a form of economic stimulus.
In recent days, Premier Wen Jiabao has said his country stands ready to stimulate growth and that he would policymakers to help boost domestic consumption. China's pace of investment in the likes of roads, bridges and real estate is running at its weakest in nearly a decade last month, Reuters reported.
The good news for CHXX is that Chinese officials have vowed to speed up the pace of infrastructure projects this year to boost growth and there are rumors that projects slated to start in 2013 could commence this year in an effort to combat cooling growth.
Construction and materials names represent a quarter of CHXX's weight while engineering and mining names combine for another 29%, highlighting the notion if China ups its infrastructure ante, CHXX might graduate to legitimate hidden gem status among the roughly 230 China ETFs on the market today.
As has been noted, Chinese stocks have looked cheap for a while and CHXX is no exception. The P/E ratio for the iShares FTSE China 25 Index Fund (NYSE: FXI), the largest China ETF, hovers around 13. That's cheaper than the broader emerging markets universe, but CHXX's trailing P/E is less than eight and the fund trades at just 1.2 times the average book value of its constituents.
Bottom line: China has shown a tendency to turn to infrastructure in the past as way of propping up the economy. Remember the 2008-2009 stimulus package there? It was infrastructure-intensive. One may disagree with governments propping up their economies, but one might also be able to profit from it with CHXX.
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