That said, on the larger emerging market front, China (FXI) is one place I still like, although it hasn’t paid off this year. China is a market that has underperformed for a number of years but because of that long-term underperformance, it has some very compelling valuations. And while Chinese growth is never going to resemble what it was four years ago, China is still an economy that’s capable of growing 7% to 8% over the near term and probably about 5% to 6% over the longer term. That is relatively fast growth in a slow growth world. China is accessible through funds such as the iShares MSCI China Index Fund (MCHI).
Market Realist – The graph above shows the quarterly GDP growth rates in China (FXI) since Q4 of 2009. China got used to double-digit growth in the 2000s. However, since Q2 of 2010, GDP growth rates in China have been steadily falling. They’ve been between 7.5% to 8% since Q1 of 2012. Although the growth rates have been dipping, they’re still higher than the major emerging markets (EEM)(VWO) and developed markets (EFA)(VEA). The iShares FTSE/Xinhua China 25 Index (FXI) has eroded investors’ wealth by 0.8% year-to-date.
Considering that China could still grow at a better rate than the world overall (QWLD), you can surely make a case for investing in Chinese funds.
Please read the next part of this series to learn the effects of shadow banking.