China has been one of the most sought-after destinations of emerging market investments over the past decade. But today, many people are questioning whether China is still a great investment. They point to slowing growth as a potential reason to avoid China. I believe these naysayers are missing the forest for the trees. China is currently:
• Home to the largest population on earth1
• Expected to continue outpacing developed (and most emerging) markets for some time1
• The largest contributor to global growth2
And there are many other reasons to consider China for your emerging market dollars. The biggest challenge I can see for investors is that popular indexes such as MSCI China
and FTSE China 25
—and the investments that mirror them—are heavily over-weighted to the financial sector.
Yes, Chinese financials are currently cheap,3
but I’m not convinced this warrants adding concentration risk in an emerging market. It is hard for me to imagine that investors want to put 40%–50% (or more) of their investment into any single emerging market sector, no matter how cheap it is.
I think in the current environment, investors might be better served by investing in China but mitigating the risk of being concentrated in one sector. In my opinion, this can help investors increase their diversification, reduce their risk and mitigate volatility—and may also enhance their returns.
The WisdomTree China Dividend ex-Financials Fund (CHXF)
may enable investors to capitalize on the growth potential of China without exposure to the financial sector.
Read the whole commentary to learn more about why now may be a good time for investing in China.
CIA World Factbook, 2012.
IMF World Economic Outlook, April 2012.
Bloomberg. As of 8/31/2012 the MSCI China Financials Sector Index has a high trailing 12-month dividend yield
and low P/E ratio
relative to other MSCI China Sector Indexes.
Important Risks Related to this Article
Diversification does not eliminate the risk of experiencing investment losses.
There are risks associated with investing, including possible loss of principal. Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. The Fund focuses its investments in China, thereby increasing the impact of events and developments associated with the region, which can adversely affect performance. Investments in emerging or offshore markets are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation and intervention or political developments. As this Fund can have a high concentration in some issuers, the Fund can be adversely impacted by changes affecting those issuers. Please read the Fund’s prospectus for specific details regarding the Fund’s risk profile.