China Growth Investment in 2014

With valuations stretched for U.S. stocks, go international

By Jeff Reeves, Editor of InvestorPlace.com

There’s no doubt that China is evolving from an emerging economy to a developed one, and that evolution is going to come with growing pains.

But China just projected that its GDP likely grew at 7.6% in 2013 — above the 7.5% forecast set in March, and down only 0.1 percentage points from 2012 GDP. And while early last year we saw trouble in manufacturing and exports, those trends have started to stabilize and move in the right direction.

From a valuation perspective, China is cheap compared with future earnings. Chinese stocks have a forward Price to Earnings ration (P/E) of about 10.6, trading at a Price/Sales ratio of 0.65 for a 35% discount. Also, The Price to Earnings Growth ratio — that is, the price compared with earnings growth — is attractive. Furthermore, Hong-Kong based companies that do a lot of business in China are also looking cheap. The P/E for this neighboring nation is 10.7.

Of course, China stocks got gutted in 2013, so some investors are still leery. Furthermore, risks of opacity or corruption thanks to the command-and-control government in Beijing are very real.

So if you want to play China, I advise a broad play via the SPDR S&P China ETF (GXC). It’s reasonably cheap with expenses of 0.59%, or $59 annually for every $10,000 invested. It’s also much more diversified with only three stocks allocated at over 3% of the fund and no pick over 7% allocation.

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Disclosure:  I own the SPDR S&P China ETF in my personal portfolio

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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