We recently learned that China finished 2015 with GDP growth of 6.9%, compared with 7.3% in 2014. That’s a drop of less than half of 1%, but the negative headlines have done their damage.
Those same scary headlines that have everyone so nervous are going to help you reap maximum gains from a Chinese sector that most investors are too worried to look into.
Because the truth is, China remains one of the world’s fastest-growing major economies. It’s expanding at three times the speed of the U.S. economy and six times as fast as the European Union’s.
And the tech ETF I want to show you today plays a sector that’s growing even faster than that.
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An Unstoppable Economic Juggernaut
It’s important to remember that worries about China started with a purely financial event, when the People’s Bank of China guided the yuan lower to make it more competitive with the surging U.S. dollar.
China is still turning in enviable growth rates by Western standards. Automotive sales, for instance, driven by tax incentives jumped 18% in December over the year before.
And that was the third straight month of double-digit growth.
Economists are predicting that annual retail sales growth rose some 11.3% in December, up slightly from the previous month’s growth of 11.2%.
And over the long haul, e-commerce will do particularly well as the nation’s population continues to move from rural areas to big cities and a tech-centric middle class rises.
Forrester notes that Chinese online sales, including those from mobile devices, stood at roughly $307 billion in 2014. By 2019, that figure will more than triple to $1 trillion.
Forward-thinking, profit-conscious companies all over the world are jumping on the growth China is experiencing now.
Uber’s Chinese Moves
That’s why the recent news that Uber raised more funds in China with a projected value in that market of $7 billion is so important.
The ride-sharing service started 2016 with a major initiative. The company is already operating in 22 major Chinese cities, and it is now moving into the secondary and tertiary cities in the People’s Republic.
Uber planned to launch in 15 new cities in Sichuan province by the Chinese Lunar New Year, Feb. 8.
Sichuan is home to 80 million people, and its capital, Chengdu, is Uber’s top city in the world after only nine months in business there.
And that’s just the beginning of Uber’s ambition. It plans to be in 100 cities in China by the end of this year. That is some significant growth.
But the twist is that, despite all this potential, you can’t invest in Uber or Uber China.
Fortunately, I know of an even better way to access the continued growth in China.
This Tech ETF Is Your Way In
And that’s why I’m so bullish on the Emerging Markets Internet and Ecommerce ETF (NSYE Arca: EMQQ).
This exchange-traded fund is based off the Emerging Markets Internet and Ecommerce Index. This is a group of companies that derive at least half of their revenue from emerging markets and frontier economies and have at least a $300 million market cap.
EMQQ can’t take more than an 8% position in any one stock. It’s passively traded, meaning that positions in the ETF reflect the companies in the index; the fund determines the position size of each investment and then rebalances those positions every six months.
And the reason these markets are so compelling is that this is where the significant growth will occur for the next decade. Developed markets like the United States and Europe are thick with consumer products and electronic gadgets.
But emerging and frontier markets are just coming up to these consumption levels.
In 2010, world consumption was split $12 trillion to $26 trillion in favor of developed economies. By 2025, the projection is a $30 trillion to $34 trillion split.
That means developing economies will almost triple while developed economies will add a mere 25% over the next decade.
EMQQ’s top holdings include Chinese e-commerce stars Alibaba Group Holding Ltd. (NYSE: BABA), Tencent Holdings Ltd. (OTCMTKS: TCTZF), JD.com Inc. (Nasdaq ADR: JD), and South Korea’s Naver Corp. (OTCMKTS: NHNCF).
It also holds some of the most compelling stocks in rapidly growing sectors like travel. Ctrip.com International Inc. (Nasdaq ADR: CTRP) is the Expedia Inc. (Nasdaq: EXPE), Priceline Group Inc. (Nasdaq: PCLN), and Orbitz Worldwide Inc. (Nasdaq: OWW) of China all wrapped into one.
The air-travel market is growing at stunning rates in China. The world’s second-largest economy is also the second-largest air travel market and, according to the International Air Travel Association, will overtake the U.S. market within the next two decades.
Bitauto Holding Ltd. (Nasdaq: BITA) is another player in a booming Chinese e-commerce sector. The company offers Internet content and online marketing services to the auto industry. A report by industrial consultants McKinsey & Co. predicts that SUV sales will triple by 2020, although passenger cars will still make up the majority of the market. And China is expected to contribute 34% of overall growth in the sector over the next five years. North America is a mere 14%.
Qihoo 360 Technology Co. Ltd. (NYSE: QIHU) is another company that is favorite in EMQQ. Qihoo is a homegrown Chinese cybersecurity company. And that’s a very big deal given the lack of trust between the United States and China regarding cybersecurity.
Americans think Chinese software and hardware has spyware, and the Chinese think the same of Americans. This makes Qihoo a winner for 1.4 billion Chinese and all their devices.
Simply put, given the dour mood on Wall Street, especially toward China, there are few better contrarian picks available than EMQQ.
If you’re still a bit skittish, just buy a little bit every month for a while to make sure you get in at a good price.
Either way you do it, you are bound to profit by taking advantage of the long-term upside in China’s growing web and e-commerce sectors.
— Michael A. Robinson
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Source: Money Morning