China’s Strategy to Boost Consumer Spending an Investment Opportunity?

China InvestmentsFor many of you who have been long-term readers, you know that I’ve been a bull towards China and Chinese stocks. Yes, there was also the period of deception and fraud with Chinese stocks listed on U.S. stock market exchanges a few years back, but much of that has been cleaned up by the Securities and Exchange Commission (SEC).

Short-Term Outlook for China Volatile

Chinese stocks are no longer favored by investors. We had the highly anticipated initial public offering (IPO) by Internet behemoth Alibaba Group Holding Limited (NYSE/BABA) in November 2014 that saw the stock surge to $120.00, only to falter back to the current $85.00 level. While there are some concerns regarding the company’s operations, specifically the sale of fake goods, the company is still worth a look for traders—especially on dips lower than $80.00.

Did you realize Chinese stocks listed in China and Hong Kong are easily beating the gains here in the U.S.? Domestically traded exchange-traded funds (ETFs) focusing on China are faring well. For instance, the iShares China Large-Cap (NYSEArca/FXI), which I talked about way back in April 2012 at $35.00, is currently trading at a 52-week high of $51.00.

iShare FTSE China 25 index fund NYSE


‘iShares FTSE/Xinhua China 25 Index ETF – Dec. 2013-Present.’
Chart courtesy of

The trading in Chinese stocks and ETFs is volatile. But as with anything, you need to have some patience and ride out the many bumps expected along the way.

China’s Long-Term Strategy an Investment Opportunity?

The reality is that the country is slowing. Gross domestic product (GDP) growth is at a published seven percent by the Chinese government, but is likely even lower, realistically. Nonetheless, the growth is still more than double that of the U.S.

Hearing famed investor, Jim Rogers, in an interview with Yahoo! Finance on his continued bullishness towards China reconfirmed my conviction. It’s a good interview. (Source: Yahoo! Finance, April 14, 2015.)

What you as an investor need to understand is the shift that is currently being played out in China, which is also helping to impact the GDP. The country is aiming to develop an economic growth model that is similar to the U.S. and other industrialized countries where consumer spending drives GDP. Domestically, consumer spending accounts for about 67% of the GDP. In China, it is around 35%. The Chinese government has undertaken a new policy to drive consumer spending and lessen its dependence on its export market.

This strategy shift will take some time. But I believe it can work based on the rising income levels and superlative rise of the 300 million or so middle-class citizens in China. The numbers will continue to grow and can only help the economy as it strives to strengthen its economic base.

As I said earlier, the FXI is a good example of a solid, diversified ETF to play China. To play the shift to consumer spending, investors can also consider the Global X China Consumer ETF (NYSEArca/CHIQ) that comprises both consumer cyclical and consumer defensive stocks that will rise on higher spending.

Global X China Consumer Index

‘Global X China Consumer ETF – Jan. 2013-Present,’
Chart courtesy of

To play the small-cap side in China, there’s the PowerShares Golden Dragon China ETF (NYSEArca/PGJ).