Market Overview

Shanghai Surprise? These ETFs Could Soar


China-specific ETFs are in rally mode today after the world's fastest-growing major economy reported fourth-quarter GDP growth of 8.9%. That's below the year-earlier level, but above the 8.7% economists had been forecasting.

Combine the GDP report with speculation that policymakers in Beijing may be close to not only loosening the reins on economic growth, but that they may be moving to boost growth and now could be the time for a China ETF renaissance.

And that fire could be fueled by the notion that after a dreadful 2011, Chinese stocks are now undervalued and are poised to rebound in 2012. We're not making guarantees about that. After all, this is China we're talking about. That said, there are plenty of China ETFs to choose from beyond the iShares FTSE China 25 Index Fund (NYSE: FXI), the largest of all China-specific ETFs. Here area few to consider.

iShares MSCI Brazil Index Fund (NYSE: EWZ) No double takes required. Brazil's biggest trading partner guessed it, China. Want to talk about correlations? Well, put a two-year chart of EWZ down and then put a two-year chart of FXI over it. FXI barely outperforms its Brazilian counterpart. Simply put, China is a major buyer of Brazilian commodities and the equation is easy to figure out. China damping economic growth = Bad for EWZ. China lighting a fire under economic activity = EWZ is a buy. If EWZ clears resistance at $65, watch out because it's off to the races from there.

Global X China Industrials ETF (NYSE: CHII) The Global X China Industrials ETF suffered through a dour 2011 as did many China ETFs, but we lik this fund as a rebound play. CHII has been a decent performer to start the new year, gaining about 3.5% and makes for an ideal play should China put the proverbial pedal to the metal on economic growth.

After all, China has been to stimulate economic growth through domestic projects and that should help an ETF like CHII. It could also help the...

EGShares China Infrastructure ETF (NYSE: CHXX) For a while, the global infrastructure theme seemed like a legitimate investment thesis. Then emerging markets stocks were dissed by investors. There are countries like Brazil and India that talk a big game when it comes to improving infrastructure. Then there are countries like China that actually do something about it. China isn't shy about using infrastructure projects to stimulate domestic growth and that's not likely to change anytime soon. At less than $17, CHXX is like a call option on resurgent domestic growth in China.

Guggenheim China Small Cap ETF (NYSE: HAO) Chinese small-caps have developed a dubious reputation in the past year and all that controversy along with the obvious macroeconomic concerns has sent HAO tumbling 34% in that time. However, when China ETFs are prized, HAO has shown it can be a stellar performer. Not to mention, there are still plenty of investors willing to roll the dice on Chinese small-caps. We're not saying HAO is perfect, but it's less speculative than that Chinese penny stock you got an email about this morning.

Market Vectors China ETF (NYSE: PEK) For those looking to tap the hard-to-access China A shares market, the Market Vectors China ETF is the fund for you. PEK uses swaps, not direct holdings in stocks, to play300 A-Share stocks listed on the Shenzen or Shanghai Stock Exchange. If a China rally materializes, a lot of folks will regret not taking a closer look at this under-the-radar ETF.


Traders who believe that Chinese stocks will bouce might want to consider the following trades:
  • Long FXI. It's still the first stopping point for many investors when it comes to China.
  • Long copper, through futures, stocks or ETFs. China essentially dictates how the copper markets act these days.
  • Long the Direxion Daily China Bull 3X Shares (NYSE: YINN)
Traders who believe that Chinese equities have more downside may consider alternative positions:
  • Long the ProShares UltraShort FTSE China 25 (NYSE: FXP).
  • Long the Direxion Daily China Bear 3X Shares (NYSE: YANG).
  • Short HAO as it would be one of the more vulnerable funds in the event of more declines for Chinese stocks.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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