China: DB X-Trackers Harvest CSI 300 China A-Shares ETF (ASHR)
And speaking of China, I recommend you add China to your list of emerging market ETFs via the DB X-Trackers Harvest CSI 300 China A-Shares ETF (ASHR).
My bullish case on China is simple enough. The country’s recent slowing appears to have bottomed out, and its stock market is almost absurdly cheap. By Financial Times estimates, Chinese stocks trade for just 7.7 times earnings.
Major changes are underway in China. The government has indicated for a few years now that it wants to transform the Chinese economy from an export-and-investment-dependent economy to one that is more focused on domestic Chinese consumers, and it has made this a major objective in its recently announced five-year plan.
It’s easy enough to understand why. Chinese consumers have grown accustomed to rising living standards, and the government hopes to channel this sentiment into a booming domestic economy. And while growth is returning to China’s main export partners in North America and Europe, the go-go years of the mid-2000s will not be returning any time soon.
Meanwhile, with American energy costs in free fall due to the domestic drilling boom, China is finding unexpected competition from manufacturers in the United States. Rising Chinese labor costs only exacerbate this trend.
The most popular China ETF is the iShares China Large-Cap ETF (FXI), and it is a fine option for investing in a resurgent China. But my preferred option is the DB X-Trackers Harvest CSI 300 China A-Shares ETF because, unlike the iShares ETF, it invests directly in Chinese A shares, which up until very recently, non-Chinese investors were not allowed to own.
The ETF is a little heavier in financials than I would like, at 39% of the portfolio, but this is significantly less than the 53% exposure to financials by the iShares China Large-Cap ETF (FXI). And unlike FXI, which has virtually no exposure to consumer sectors, ASHR has a combined allocation of about 26% to consumer staples and discretionaries.