Tuesday, November 28, 2006

Banking on Chinese Stocks

Chinese stocks have significantly outperformed the US markets this year. That trend looks to continue for the next several years. Many believe there is plenty of room for further growth. Citigroup along with several other investors recently paid $3.6 billion for an 86% stake in Guangdong Development Bank. According to, Citigroup paid 3 times book value for shares of Guangdong. The average price to book value for money center banks is 2.01 (Source: Reuters). The best way to invest in China is through the iShares ETF (FXI). PowerShares also has a China ETF (PGJ) but it is comprised mostly of Chinese ADR's. PowerShares' ETF only has financial exposure in China Life Insurance (LFC) (4.82% of holdings). If you want to own a piece of the Chinese banking sector you need to buy FXI not PGJ.

FTSE/Xinhua China 25 Index Fund (FXI)
Expense Ratio 0.74%
Beta 1.6

Holdings as of 11/24/06 (Source: iShares)
9.27% China Mobile Hong Kong, Ltd.
9.05% PetroChina Co., Ltd.-Class H
8.44% Industrial & Commercial Bank of China-Class H
China Life Insurance Co., Ltd.-Class H
6.23% Bank of China, Ltd.
4.33% China Telecom Corp., Ltd.-Class H
4.22% China Construction Bank-Class H, 144A
4.16% Bank of Communications Co., Ltd.-Class H
4.10% China Petroleum & Chemical Corp.-Class H
4.06% China Shenhua Energy Co., Ltd.-Class H


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