China is the world’s largest population country with the number of people is 1.354 billion. Chinese economy is the second largest in the world GDP of $8.32 trillion. It’s a good business avenue but conducting trade in business in China has various barriers and obstacles due to cultural and linguistic difference. However in 2013 there was a 5/3% growth in country’s foreign direct investment which grew over year to be $117.6 billion. And it could be concluded one can get a vast excess to the country’s stock market and corporations by investing in Chinese ETFs and Chinese ADRs.
Warren Buffet, World’s best business specialist said that “The 19th century belonged to England, the 20th century belonged to the US, and the 21st century belongs to China. Invest accordingly.” Here listed are the ways through which on can invest in Chinese Market.
Chinese Large-Cap ETF
Start with investing in iShares China Large-Cap ETF (FXI), which tracks the performance of 25 companies of Chinese Equity Market. This exchange traded fund was established in 2004 with the name of FTSE/Xinhua China 25 Index (ETF). This ETF consists of five sectors namely, Financial Services, Telecom, Technology, Energy and Basic Materials with the total assets value of $4.92 billion and it charges management fee of 0.73%. The fund could be traded through FirsTrade and TD Ameritrade with free commissions.
In recent year this ETF has underperformed S&P 500 ETF by 0.08%. The companies being traded in in this index have low price multiples but in terms of dividend payment they have high profile as it has the dividend yield of 2.89%. The five-year price to earnings multiple of index is 9.94%. Recent P/E multiple of index is 7.25% and S&P 500 index P/E multiple is 15.52x.
ETF of Internet Companies
The second ETF is internet companies of China which are worth investing. The China Internet ETF is KraneShares (KWEB). Management fee of ETF is 0.68%. With the dividend yield of 0.29% this fund pays dividend semiannually and main sectors are technology, consumer discretionary, consumer staples and industrial. The total value of assets in fund is $77.7 million. The ETF was constructed ion August 2013 and has assets oiver $80 million. It has outperformed S&P 500 by 0.242% since its inception. This ETF gives a high exposure of investment for investors as China has a large internet market which has been penetrated only 40%.
Chinese ADRs
Third option of investing in Chinese stock market is through investment in Chinese ADRs. Here are the three top high performing Chinese Companies with ADRs, an alternative approach for investors who do not wish to invest in exchange traded funds.
- China Mobile Ltd ADR
China’s largest mobile services provider company, China Mobile Ltd ADR recorded $48.9 billion in its topline with compounded annual growth rate of 13% in sales for last three years. With 740 million subscribers, company is growing its subscribers 8.5% on annual basis. Company’s stock is trading at P/E multiple of 11.6x which is discounted to its competitors Unicom and China telecom which are trading at price to earnings multiple of 13.6% and 19.4% respectively.
- Baidu ADR
Baidu ADR is a Google of China as it serves as the largest platform of internet search. Company recorded $5.2 billion in revenues and trades at price to earnings multiple of 26x. The stock is rated as buy by 26 analysts and 9 analysts rate it as hold.
- Perfect World ADR
Perfect World Co ADR is China’s fourth largest gaming platform which is involved in numerous online games. The revenue of the company has grown at the compounded annual growth rate of 10.8% for three years and currently stands to be $496.6 million. Perfect world stocks are trading at one year forward P/E ratio of 9.25x and its earnings per share (declined in last three years) are expected to grow by 15.6% in next three years. 10 analysts have rated stock as buy whereas 4 have rated it as hold.
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