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Chinese Stocks: Huge Growth and Room for More

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some Chinese stocks to your portfolio but don't have the time or expertise to hand-pick a few, the SPDR S&P China (NYSEMKT: GXC  ) could save you a lot of trouble. Instead of trying to figure out which Chinese stocks will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual-fund cousins. This ETF, focused on Chinese stocks, sports a relatively low expense ratio -- an annual fee -- of 0.59%.

This ETF topped the MSCI EAFE index over the past five years but lagged over the past three. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why Chinese stocks?
China is of great interest to many investors because of its massive and growing population and the fact that its economy is developing, with a swelling middle class able to buy more.

More than a handful of Chinese stocks had strong performances over the past year. Qihoo 360 Technology (UNKNOWN: QIHU.DL  ) , a browser and security specialist, nearly quadrupled in value. It has entered the search market, where it competes against Baidu (NASDAQ: BIDU  ) and is a credible threat due to its browser dominance. It's already stealing market share in search. Qihoo 360 is growing briskly, with revenue expected to double this year and jump by more than 50% next year. International (NASDAQ: CTRP  ) tripled in value as it profited from China's $100-billion-plus travel boom. It recently posted 31% revenue gains over year-ago levels (and net income up 92%), with both revenue and earnings topping estimates. But it also forecast a slowdown in its growth rate, leading some to see it as a bit pricey at recent levels. Management commented, "We expect mobile to become Ctrip's most important booking platform in the near future, and we will continue to extend our leadership in the online and mobile travel markets in China."

Search engine giant Baidu surged 75%, growing its business briskly. As my colleague Mathew Frankel has noted, Internet usage is growing rapidly in China, and Baidu's "revenues have more than quintupled in the past five years, and are expected to increase by another 39% this year and 33% next year." The company's reputation has taken some hits, though, including allegations that it's facilitating piracy. Baidu's last quarter featured revenue up 42%, but profit margins shrank a bit as it invested in further growth. Bulls like Baidu's profitability and growth prospects in areas such as video, smart TVs, and mobile apps.

Other Chinese stocks didn't do quite so well over the last year but could see their fortunes change in the coming years. China Life Insurance (NYSE: LFC  ) , with a market capitalization topping $75 billion, was basically flat. Analysts at Zacks downgraded it to neutral about a month ago based on intensifying domestic competition and shrinking cash flows. On the plus side, the company's foray into private equity holds great potential. China Life Insurance is one of the world's largest life insurers, but a few months ago our analysts didn't rank it highly.

The big picture
If you're interested in adding some Chinese stocks to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing and profiting that much easier.

Profit From China While Buying American!
The coming boom in the Chinese auto market bodes well for American and other non-Chinese automakers. As Chinese consumers grow richer, savvy investors can take advantage of this once-in-a-lifetime opportunity with the help from this Motley Fool report that identifies two automakers to buy for a surging Chinese market. It's completely free -- just click here to gain access.

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10/21/2016 4:00 PM
GXC $79.40 Up +0.07 +0.09%
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LFC $12.95 Down +0.00 +0.00%
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