Ask Money

Investing in China

Chris Farrell Aug 27, 2008

Question: Big fan of your show on Saturday mornings here in Cincy. Unfortunately, only caught last few seconds on 8/23 when heard you talking about ADRs and possible tie in with ETFs? Anyway, I’m thinking of investing in China as there’s been a significant correction in their markets. I was trying to figure out the most efficient, cost-effective way to do that so I’ll start researching on the ‘Net for a good ETF. But, maybe you had a better idea? Thank you, Ruth. Cincinnati, OH

Answer: Check out From Wall Street to the Great Wall by Burton Malkiel and several co-authors. Malkiel, an economist at Princeton University and author of the well-known investment A Random Wall Down Wall Street, believes China will become the “world’s mightiest economic power”. However, while investing in China should be lucrative over the long haul, the ride will be wild and hazardous.

There is no shortage of investment opportunities when it comes to China. For instance, a number of exchange traded funds (ETFs) have been created, and it seems that more are being created nearly every week. Among the better known ETFs are the SPDR S&P China ETF (GXC), the Vanguard Pacific Index Viper (VPL), the iShares MSCI Hong Kong (EWH), iShares FTSE/Xinhua China 25 Index (FXI) and PowerShares Golden Dragon Halter USX China (PGJ). They are all down sharply so far this year. There are traditional open-ended mutual fund companies that specialize in the China and the Far East, and you can also research the “H” and “N” shares of Chinese companies. The H shares are traded in Hong Kong and the N shares in New York.

Malkiel and his co-authors don’t only make the case for investing in China, but they offer up plenty of investment examples and strategies. Good luck.

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