Investing in China has been a hot topic for years and will be for many more to come. Considering the country's latest GDP growth came in at a whopping 11.9%, how can it be ignored by investors? Even during the global recession years of 2008 and 2009 China was able to post solid growth numbers with a GDP of 9.13% in 2008 and 8.48% in 2009.

IN PICTURES: 10 Reasons To Add ETFs To Your Portfolio

There are a number of ways investors could gain exposure to the China growth in their portfolio. The two most popular are Chinese companies that trade as ADRs on U.S. stock exchanges and Chinese exchange-traded funds (ETFs). Due to the company-specific risk of investing in individual stocks, the best strategy for most investors is Chinese ETFs. (For a quick refresher on this topic: check out ADR Basics: What Is An ADR?)

Broad-Based China ETFs
The largest Chinese ETF, as measured by assets under management, is the iShares FTSE/Xinhua China 25 ETF (NYSE:FXI). The ETF invests in 25 large-cap Chinese stocks that either trade in the U.S. or Hong Kong.

The largest holding is China Mobile (NYSE:CHL) with 10% of the allocation. Financials make up 45.4% of the ETF and China Construction Bank is the number two holding with a 9% allocation. Because the ETF only invests in 25 stocks and the top two holdings make up 19%, the ETF is not considered diversified and therefore the risk is higher than a typical ETF. That being said, FXI is a solid proxy for the large-cap Chinese stock market and an acceptable option for most investors. (For more, see Investing In China.)

Other broad-based China ETFs include the SPDR S&P China ETF (NYSE:GXC) and PowerShares Golden Dragon USX China ETF (NYSE:PGJ).

Sector ETFs
During the last year a number of ETF companies introduced Chinese sector-specific ETFs. Now investors have the opportunity to invest in sectors such as financials or technology similar to U.S. sector ETFs. The Global X family of ETFs is the leader with six Chinese sector ETFs; their largest by assets under management is the Global X China Financials ETF (NYSE:CHIX). The ETF is composed of 25 stocks that have their main business operations in China and only securities that are tradable for foreign investors without restrictions are included. The expense ratio is an acceptable 0.65%.

Investors have a choice if they want to invest in the Chinese technology sector. There is the Global X China Technology ETF (NYSE:CHIB) or the Claymore China Technology ETF (NYSES:CQQQ). CHIB invests in a number of Chinese stocks that trade in the U.S. as ADRs such as China Unicom (NYSE:CHU) and Baidu.com (Nasdaq:BIDU). CQQQ has many of the same holdings as its competitor and they both charge similar expense ratios; 0.65% for CHIB and 0.70% for CQQQ.

Favorite China Sector ETF
Of the remaining Chinese sector ETFs there is one that stands out above the rest due to its exposure to the growing middle class - the Global X China Consumer ETF (NYSE:CHIQ). The ETF allows investors to take advantage of the growth of the China consumer through retail, food, consumer services and automobiles. What also makes this ETF unique from many other China ETFs is that it relies more on the economy of mainland China and not foreign nations. My bet here is that the growth in China continues and the middle class benefits.

The Bottom Line
Keep in mind that there will be high volatility with sector ETFs and especially the ones that concentrate on an emerging economy such as China. (For more, see China ETFs Move With The Market.)

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

Related Articles
  1. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  2. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  3. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  4. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  5. Stock Analysis

    6 Risks International Stocks Face in 2016

    Learn about risk factors that can influence your investment in foreign stocks and funds, and what regions are more at-risk than others.
  6. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  7. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  8. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  9. Investing

    3 Things About International Investing and Currency

    As world monetary policy continues to diverge rocking bottom on interest rates while the Fed raises them, expect currencies to continue their bumpy ride.
  10. Investing News

    Tufts Economists: TPP Will Reduce U.S. GDP

    According to economists at Tufts University, the TPP agreement will destroy half a million jobs in the U.S. by 2025.
RELATED FAQS
  1. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  2. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  3. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  4. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
  5. What is the formula for calculating the current ratio?

    The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability ... Read Full Answer >>
  6. What is the formula for calculating earnings per share (EPS)?

    Earnings per share (EPS) is the portion of a company’s profit that is allocated to each outstanding share of common stock, ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center