Playing China Breakout with ETFs

The Shanghai Composite Index rallied 68 points overnight to close at 2311, good enough for a gain of 3.1%. The index is now sitting at its best level since June of last year and is up 18% from the low set less than two months ago.

A strong export number last week and the hopes of continued stimulus and domestic demand have investors putting money back into the 2nd largest economy in the world.

Most investors will turn to an exchange-traded fund (ETF) as the way to play the rally in China. The largest of the group is the iShares FTSE/Xinhua China 25 ETF ($FXI), which is just off a 52-week high. This is probably the best option for the average investor because it invests in 25 large-cap stocks based in China.

But for others (like most of our clients) that like to think outside the box there are other options in the world of China ETFs. Because consumption within the country is doing well and more stimulus would spur this growth even more, investors should turn to the Chinese consumer.

The Global X China Consumer ETF ($CHIQ) is a basket of consumer oriented stocks that has done really well the last few months. Since hitting a low last July the ETF is up 30%, but still not at a new 52-week high, suggesting there is definitely more room to run on the upside.