A wall stretching 5,000 miles, an army of hand-carved soldiers numbering 8,000, and a forbidden city built on 180 acres of prime real estate — China may have pioneered the concept of ‘go big or go home.’ China is second only to the United States when it comes to the size of their economy, but that’s changing quickly.
As one of the fastest growing economies in the world, China successfully octupled its gross domestic product (GDP) from 2000 to 2015. (GDP is a similar measure to revenue for companies.) If we translate that into dollars, it would equate to roughly $10 trillion. That’s no small feat, but hey — in China you go big or go home.
Just how Colossal is Colossal China?
Imagine that there was a stock ticker for every country in the world. Colossal China is about owning the stock that represents China’s economy, and it’s been in the green*. Specifically, Colossal China is primarily made up of two industries: technology and financial services.
The robust technology industry in the United States has historically been a bugaboo for the Chinese government. In fact, websites like Google, Facebook, Youtube, and Twitter are all banned from use in China. Although not taken kindly by the aforementioned technology giants, this has opened the door for a homegrown technology industry in China to fill the gaps.
On the other hand, their financial services industry is nothing like Wall Street. The largest banks in China are government owned enterprises. In fact, 4 out of the top 5 banks in the world by total assets are Chinese. ????
Inside the Investment
Colossal China, true to it’s name, has a lot of exposure to some of largest companies in the Chinese economy.
Chinese technology companies are often a patchwork of their respective American counterparts. For example, Tencent, which is Colossal China’s largest holding, is like Facebook, Twitter, WhatsApp, and Zynga rolled into one. And you guessed it, Tencent is the social media giant of China, with hundreds of millions of active users on their platforms. Alibaba, the second most colossal holding in Colossal China, follows a similar paradigm. Alibaba could be described as a combination of Amazon, eBay, and PayPal. With their visionary founder Jack Ma as executive chairman, Alibaba is showing no signs of slowing down anytime soon.
And now for the financial services industry! Some top holdings in Colossal China are the China Construction Bank, the Industrial and Commercial Bank of China, and the Bank of China. Although perhaps not as flashy as the tech companies, these giants have over a trillion dollars in assets — each. Have we mentioned go big or go home?
But is Colossal China for me?
This ETF (Exchange-Traded Fund) is for investors who believe that the growth of China will be sustainable going forward and want a piece of that action. It could also be a great choice for investors who want to increase their exposure to companies headquartered outside of the United States. After all, the Stash Way is all about diversification.
It’s important to note that this investment can be volatile because of the fact that it has a single geographic exposure (I mean, it’s right there in the name), and foreign politics can be tricky. Combine this with the fact that China might be an international superpower, but it’s a new international superpower, and you have the perfect recipe for volatility. So if you choose to invest in Colossal China, make it part of a diversified portfolio.
Got it, anything else I should know?
We also recommend that you do your own research about the underlying ETF, SPDR S&P China ETF (GXC), on the fund’s website. As always, it’s important to keep an eye on the expense ratio, dividend yield, and the risk-return profile of the investment.
🌈 The more you know! 🌈
Keep Reading: Now That’s What I Call an Investment! ETFs Explained.
FootnotesBut remember, as always, past performance is not indicative of future performance. #investingbrokenrecord https://www.bloomberg.com/graphics/2016-us-vs-china-economy/ Banking In China World's Top Banks Tencent
The SPDR® S&P® China ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P® China BMI Index. The S&P® China BMI Index is a market capitalization weighted index that defines and measures the investable universe of publicly traded companies domiciled in China, but legally available to foreign investors. The China Index is "float adjusted", meaning that only those shares publicly available to investors are included in the China Index calculation. The Fund invests by sampling the Index, holding a range of securities that, in the aggregate, approximates the full Index in terms of key risk factors and other characteristics which may cause the fund to experience tracking errors relative to performance of the Index. Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations, all of which may be magnified in emerging markets. Fund information reported as of February 20, 2017.