There’s no doubt that China is evolving from an emerging economy to a developed one, and that evolution is going to come with growing pains.
But China just projected that its GDP likely grew at 7.6% in 2013 — above the 7.5% forecast set in March, and down only 0.1 percentage points from 2012 GDP. And while early last year we saw trouble in manufacturing and exports, those trends have started to stabilize and move in the right direction.
From a valuation perspective, China is cheap compared with future earnings. Chinese stocks have a forward P/E of about 10.6, trading at a price/sales ratio of 0.65 for a 35% discount. Also, The PEG ratio — that is, the price compared with earnings growth — is attractive. Furthermore, Hong-Kong based companies that do a lot of business in China are also looking cheap. The P/E for this neighboring nation is 10.7.
Of course, China stocks got gutted in 2013, so some investors are still leery. Furthermore, risks of opacity or corruption thanks to the command-and-control government in Beijing are very real.
So if you want to play China, I advise a broad play via the SPDR S&P China ETF (GXC). It’s reasonably cheap with expenses of 0.59%, or $59 annually for every $10,000 invested. It’s also much more diversified with only three stocks allocated at over 3% of the fund and no pick over 7% allocation. That’s much safer than the more popular iShares FTSE China Large Cap ETF (FXI), whose top five holdings have a massive 40% allocation collectively.
If you want a direct play on China, one of the few individual equities I feel comfortable owning is oil giant CNOOC (CEO). It’s a state-run oil company that is a decent play on the region’s growth, and also a decent bargain right now.