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Wednesday, August 30, 2006

Investing in China for Growth with FXI, EWH & EWC

By Yaser Anwar, CSC of Equity Investment Ideas

Few other countries have been able to match the pace of China's sustained economic growth. With GDP increasing, on average, more than 8 percent annually since 1978, China has become a major player in the global economy.

To play Chinese growth investors should take a look at the FXI exchange-traded fund. The index consists of 25 of the largest and most liquid Chinese companies.

The FXI ETF in itself is well diversified. From holdings in Oil (PetroChina, Sinopec & CNOOC), Technology (China Mobile), Financial Institutions (China Life Insurance & CITI Pacific) & Construction (China Construction Bank). The top five companies represent 40% of the index.

The FXI is up 27% YTD and is trading just below its 52 week high of $83.90 hit in early May. FXI has recouped 19% in two months after falling to $66 during the early summer doldrums, hence this goes to show relative strength & momentum in FXI.

China's exports rely on what may be an unsustainably low fixed exchange rate, this could play to your advantage. Investors can utilize an indirect vehicle tha benefits from not only Chinese growth but also currency movements through Hong Kong iShares EWH is one of them. This ETF has sizable allocations to Hong Kong real estate (33%), utilities (17%) and banking (16%).

While perusing Forbes, i read an unorthodox method to play China. The article talked about investing in the Canada iShares EWC as an indirect China play. The Chinese are going on a buying spree investing in Canadian energy companies and recently plunked down $2 billion to build a thousand-mile pipeline from Alberta tar sands to a port on the west coast and onward to Beijing and Shanghai.

The Canada iShares ETF EWC has 40% exposure to Canada’s energy & materials sector.

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