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 (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

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  2. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  3. Stock Analysis

    The Biggest Risks of Investing in Pfizer Stock

    Learn the biggest potential risks that may affect the price of Pfizer's stock, complete with a fundamental analysis and review of other external factors.
  4. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  5. Economics

    Long-Term Investing Impact of the Paris Attacks

    We share some insights on how the recent terrorist attacks in Paris could impact the economy and markets going forward.
  6. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  7. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  8. Markets

    PEG Ratio Nails Down Value Stocks

    Learn how this simple calculation can help you determine a stock's earnings potential.
  9. Mutual Funds & ETFs

    Buying Vanguard Mutual Funds Vs. ETFs

    Learn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
  10. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. How do mutual funds work in India?

    Mutual funds in India work in much the same way as mutual funds in the United States. Like their American counterparts, Indian ... Read Full Answer >>
  3. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  4. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  5. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  6. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>

You May Also Like

Trading Center