Investing in China and other Emerging Markets through ETFs

Tricom Trades gives investors the ability to invest in the emerging markets such as China, India, Brazil, and Russia, while still keeping their capital in Australia.

This is done through Exchange Traded Funds (ETFs). These funds are designed to track the stock exchange of the nation that it represents, moving up or down with the underlying index. ETFs have become increasingly popular with investor wanting to catch the next wave of growth in these emerging markets.

Emerging Markets

“It’s been a while since we checked up on the BRIC countries (Brazil, Russia, India, China), so below we highlight two performance charts comparing them to the S&P 500. Over the last year, the US has performed better than Russia and China, inline with India, and worse than Brazil. Russia’s stock market is down the most of the BRIC countries at -68%. China’s Shanghai Composite is down 46% and has really seen a nice pickup lately. India’s Sensex is down 43%, which is right inline with the S&P 500, and Brazil is down 36%.

“The last ten years have been very tough for US equity markets, with the S&P 500 now down 42% on a simple price basis. But even after the suffering that BRIC markets have had over the last year, their ten-year returns remain strong. Russia is down 68% over the last year, but it is still up 689% over the last decade (we had to put its performance on a secondary axis in the chart below). China is up 84%, India is up 136%, and Brazil is up 314%.”

Key ETF Performance

Below we highlight the one-day, five-day, and one-month performance of key ETFs across all asset classes.  Today was a strong day across the board, with small caps and mid caps doing slightly better than large caps.  Value stock ETFs actually outperformed growth stock ETFs as well.  On a sector basis, the financial ETF (XLF) was up the most with a gain of 14.86%, and outperforming the second best sector (Industrials) by a wide margin.  Globally, the Russian market ETF (RSX) was up 12.93%, followed by Italy (EWI), and China (FXI).  Commodity and US Treasury ETFs were the only areas of the financial world that were down today.  Looking at the one-month performance of all of these ETFs, however, snaps investors back to the reality that things are still pretty bad out there.

Richard Russell (Dow Theory Letters): Potential buyers of gold?

“Here are some figures, the first number is the nation’s holding of gold and the second figure is the percentage that gold is of their reserves. Nations with low percentages of gold in their reserves may be expected to be potential buyers of gold.

US – owns 8,135 metric tons of gold … Gold makes up 64.4% of US reserves. The US will not sell any of its gold.
Germany – 3,412 … 64.4% of reserves
IMF – 3,217 …
France – 2,508 … 58.7%
Italy – 2,451 … 61.9%
Switzerland – 1,040 … 23.8%
Japan – 765.2 … 1.9% (a potential gold-buyer)
China – 600.0 … 0.9% (should be a big buyer)
Russia – 495. 9 … 2.2% (is a buyer)
Taiwan – 422.2 … 3.6% (should be a buyer)
India – 357.7% … 3.0% (should be a buyer)
UK – 310.3 … 14.5% (sold most of its gold at the low price)
Saudi Arabia – 143.0 … 11.4% (should buy gold)
South Africa – 124.4 … only 9.0%
Australia – 79.8 … 6.3%”

Source: Richard Russell, Dow Theory Letters, February 18, 2009.

China Breakout

To get exposure to the China market we suggest using Tricom Trader (download demo here) and the iShares China 25 ETF (code: FXI) which is available as a Stock & CFD (15% margin).

ln early December we pointed out that China’s equity markets were beginning to show signs of stability.  After rallying a little further after that post, however, China’s market pulled back once again, but it never broke below its prior lows from November.  Now, China has staged another short-term rally, and it just broke out of its multi-month trading range today.  From its low in November, China’s Shanghai Composite has rallied 23.5%, and its technicals have turned positive once again.  But as shown in the top chart below, the index still has a long way to go before it puts a dent in the declines seen in ’07 and ’08.

Source: Bespoke Research

Tricom Today 23-1-09

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The market is down 104 underperforming the 24 point fall predicted by the SFE Futures this morning. Resources and property taking it in the neck down 4.2% and 3.5%. BHP and RIO down 3.9% and 2.1% as China announced their 4Q GDP figure yesterday at 6.8% – in-line but the slowest pace in 7 years and down from 9% in the 3rd Q. Japan and China have already cut steel production by 28% and 5% respectively. Oz Minerals received a bridging facility for $140m to tide them over until the 27th Feb when their $1bn in debt needs to be rolled over.
Financials weak all the banks down about 3-4%. CBA reported funds under administration and management down about 11% each due to net retail outflows of about $749m. The Dow Futures suggest a 34 point fall on Wall Street tonight.