investing in indexed linked funds to China and India

[samfarrell]

Hello
given that the Chinese and Indian stock markets are growing and set to grow at double figure rates over the next few years, why isnt everyone investing in some form of indexed linked fund to these markets? what are the down sides, besides the obvious ones of investing in stocks...? like the quinn life China fund

 

[gonk]

what are the down sides, besides the obvious ones of investing in stocks...?

Exchange rate risk is one which comes immediately to mind, as the stocks in question are priced in the local currencies.

 

[samfarrell]

i see. but couldnt exchange rates also be in ones favour , therefore increasing the potential return. maybe investing in a Chinese ETF, although i imagine these would be at quite a high value now?

 

[gonk]

i see. but couldnt exchange rates also be in ones favour , therefore increasing the potential return.

They could indeed, but you just need to be aware that by investing in these markets, you are taking a position not just on the performance of the stocks themselves, but on the exchange rates.

To take a more mainstream market, the US dollar is down about 10% on the Euro in the last three years. If you had invested in US stocks then, you would have had to made a dollar gain greater than 10% on the share price in order to be showing a profit.

 

[col]

A lot of people have invested in these countries particularly in Exchange traded funds such as iShares. The growth has been unbelievable and anyone who invested 5 years ago has done fantastic. Will it continue ?-most commentators say it is a bubble waiting to burst.

 

[Janman07]

Samfarrell,

The most popular ETF for chinese shares is iShares FTSE Xinhua 25 (Ticker FXI.US), this tracks the largest 25 chinese shares by market cap. The recent volatility in chinese shares was mainly limited to domestic chinese A shares and B shares listed in Shanghai. These shares and, in particular, small cap A and B shares have been hit hard as their values had been pushed well above their fair value by speculators. The FXI ETF however are traded in the Hong Kong market and are heavily weighted in petro-chemical which have performed strongly and are less speculative than the chinese main market. If you look at a graph of the performance of FXI over the last few weeks you will see that it has remained pretty steady while many chinese stocks tanked.

The Indian market is even less open to foreign investment and even ETFs such as the iShares MSCI India are only listed on the Singapore Exchange and can be awkward to access. As there is a growing demand for access to the growth of India, you can expect new products to enter the marketplace pretty soon.

For the moment, some of your investment options for China - India are as follows:

1. iShares FTSE Xinhua 25 Index (FXI.US) which can be bought through most stockbrokers.
2. Quinn Life China Freeway, which basically buys units in FXI but allows you to invest at regular intervals and charges you 1.5% per annum for the service (Buying through a broker as in 1. only charges you when you buy and sell shares in the ETF but will not suit regular investment).
3. Irish Life have a China India fund in partnership with fidelity investments. Fees for this fund vary depending on intermediary etc. and if you examine the Chinese components you will see that it is mainly composed of the companies which make up FXI.
4. Eagle star have a new India Equity fund which is basically a repackaged version of the Lyxor MSCI India ETF.

I am not in any way recommending investment in any of these products but these are the easiest methods of exposure to these markets for Irish investors.

 

[z108]

Chinese shares appear to be overvalued and this is obscenely obvious in the exchange which only Chinese people may access. However this may last years or it may last 6 months.
If/when a downwards correction comes I doubt it will halt Chinese export growth and shares will eventually resume an upward path.
However the severity of the possible correction is what keeps most of my money out of the Chinese market for now.

But if/when a correction comes I will be waiting with a lorry load of cash to buy in at a lower level. Until then I will read and research as much as I can.

Regarding currency risk,
The US is constantly trying to exert influence on the Chinese for Chinas' currency to be revalued upwards. Even the lowering of the dollars' value doesnt appear to be helping them to counter the US economys' huge imports of cheap Chinese goods (which is what the Chinese growth story is all about).
I dont know if this would happen any time soon as its good for their exports for the Yuan/Ren (the Chinese currency) to be low. However everything I've read seems to point towards the Chinese curency over the long term going up in value rather than down .

Would love to see anyones views on this