As one of major catalysts for growth, China is emerging as the dominant force in the global economy. Over the last two and half decades, China has moved from a country of substance agriculture to a major manufacturing powerhouse. Its 1.3 billion residents are experiencing job growth and creation as well as the new found wealth. As its nation expands, the demand for everyday western necessities such clean water, electricity and telecommunications are becoming more and more important. The C.I.A. estimates that, in 2008 alone, approximately 200 million rural laborers and their dependents relocated to urban areas to find work. All this urbanization and expansion leads up to a dramatic increase in the number of natural resources utilized by the Asian Dragon. Over the recent months, China has been stockpiling various commodities, including aluminum, copper, nickel, tin and zinc, giving credence to this notion.

IN PICTURES: 20 Tools For Building Up Your Portfolio

Investing in China Without China
While investing in China for the long term offers several rewards, many investors have far too little allocated to the country. The average portfolio has fewer than 2% worth of direct investment. Most investors cite differences in accounting standards, worries about China's communist government and its state-owned enterprises (SOE) and general emerging market jitters as the reasons for skipping the country in their portfolios. However, there are ways to play China and its growth, without direct investment. Finding a China strategy that includes stability and safety is as easy as finding where China shops.

Commodity-Rich Nations
Both Canada and Australia offer investors a play on China without the direct investment. On top of the political stability and alliances with the United States, both nations are extremely rich in a diverse group natural resources. These include vast deposits of petroleum, iron ore, copper, gold, uranium and timber, just to name a few. Essentially, all the resources needed to jump start a nation infrastructure, energy and general build up.

The easy ways for regular retail investors to participate in these nations is through exchange traded funds. While the choices are narrower, there are two standout choices, both from iShares. For Australia, the iShares MSCI Australia Index (NYSE:EWA) offers a 34% weighting towards energy and basic materials including holdings in commodity giant BHP Billiton (NYSE:BHP) and iron-ore specialist Fortescue Mining (OTC:FSUMF.PK). The ETF also yields an impressive 5.5%. For Canada, the iShares MSCI Canada Index (NYSE:EWC) gives investors a nearly 46% weighting towards energy and materials. Both ETFs charge 0.52% in annual expenses.

For investors wanting exposure to Australia via a closed-end fund structure, Aberdeen Australia Equity Fund (AMEX: IAF) provides a 24% exposure to basic materials while providing a 9% distribution rate. The fund is currently trading at an 8% premium to its net asset value.

Playing With Currency
An interesting angle to play in regards to these commodity supermarket nations is in their currencies. Both have rallied quite nicely against the dollar in recent months; the Canadian Loonie is up 21% against the U.S. dollar since its lows in March and should continue to increase long term, as the world reevaluates how it views the U.S. greenback. Rydex offers two of its popular CurrencyShares products for these nations: the Australian Dollar Trust (NYSE:FXA) and the Canadian Dollar Trust (NYSE:FXC).

The Bottom Line
China's growth offers vast profitability, if investors are able to tap into it. By shifting our focus away from direct investment and looking at alternatives, other plays emerge. The commodity rich nations of Australia and Canada give investors a way to profit from where China goes to shop. The preceding exchange traded products are a quick and easy way to gain exposure to those nations. (To learn more, see An Inside Look At ETF Construction.)


Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Active Trading Fundamentals

    How Hedge Funds Front-Run Index Funds to Profit

    Understand what front running is, and learn how hedge funds use this investing strategy to profit from the anticipated stock buys of index funds.
  2. Mutual Funds & ETFs

    ETF Analysis: Schwab US Large-Cap

    Discover how the Schwab U.S. Large-Cap exchange-traded fund is managed, the index it tracks and the investors for which it is most appropriate.
  3. Mutual Funds & ETFs

    ETN Analysis: Rogers Intl Commodity Energy Total Return

    Learn more about the Rogers International Commodity Total Return, which is an exchange-traded note that tracks a broad index of commodity futures.
  4. Investing Basics

    Explaining Trade Liberalization

    Trade liberalization is the process of removing or reducing obstacles that impede the exchange of goods and services between nations.
  5. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  6. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  8. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  9. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
  10. Mutual Funds & ETFs

    ETF Analysis: ETFS Physical Platinum

    Learn about the physical platinum ETF. Platinum embarked on a bull market from 2001 to 2011, climbing to record prices along with other precious metals.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Brazil, Russia, India And China ...

    An acronym for the economies of Brazil, Russia, India and China ...
  4. Optimal Currency Area

    The geographic area in which a single currency would create the ...
  5. European Sovereign Debt Crisis

    A period of time in which several European countries faced the ...
  6. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!