Last Ditch Effort to be Long China With These ETFs

With the world's second-largest flirting with a possible banking crisis, it is not surprising to see investors dumping China ETFs. This is far from a one-day phenomenon, however.

Actually, it has been happening all year.

The iShares FTSE China 25 Index Fund FXI, the largest and most heavily traded China ETF, is locked in a race to the bottom with the iShares MSCI Brazil Index Fund EWZ for the dubious honor of being the worst-performing of the four major single-country BRIC ETFs this year.

Since the start of June, a combined $1.36 billion has been pulled from FXI and the iShares MSCI Hong Kong Index Fund EWH, according to Index Universe data. Note that that data runs through June 19, so it is safe to say that number will be higher when Thursday's sell-off in China ETFs is accounted.

And it is Thursday's plunge in China ETFs at the hands of surging SHIBOR rates that has reminded investors of the fatal flaw of some China funds. That being excessive weights to the financial services sector.

For those that do not want to short China. Here is some free, albeit unsolicited advice. First, go look at the chart of the ProShares UltraShort FTSE China 25 FXP and try to refute that the ETF does not have upside to the high $20s or perhaps even low $30. Second, the steadfast China bulls out there should have a look at the following ETFs.

Guggenheim Solar ETF TAN
The Guggenheim Solar ETF is not a China-specific play, but China and Hong Kong do combine for over 35 percent of the fund's weight. Despite financial conditions at some Chinese firms that are best deemed as shaky, TAN has managed to be the top-performing non-leveraged ETF this year.

Past performance is no guarantee of future returns and this is not a ringing endorsement of solar stocks, but TAN does offer at least two advantages for the investor looking for China exposure. First, the ETF is not an all-in bet on China as U.S. solar names account for almost 48 percent of the ETF's weight. Second, there are no Chinese bank stocks here.

Here's the cautionary tale: If Beijing is forced to support ailing banks, that will likely be a higher priority than saving financially imperiled solar companies.

Market Vectors Gaming ETF BJK
The Market Vectors Gaming ETF, which is down three percent, shares one positive attribute with TAN. This ETF gives investors China exposure without the commitment of an all-China lineup. In the case of the lone gambling ETF, the weight to China is almost 26 percent.

With investors scrambling out of riskier assets Thursday, it may be going unnoticed that Lazard raised its price targets on Las Vegas Sands LVS and Wynn Resorts WYNN, Barron's reported.

Earlier this week, Oppenheimer had positive things to say about Sands China and Melco Crown Entertainment MPEL. Those four stocks combine for about 26 percent of BJK's weight.

WisdomTree China Dividend Ex-Financials Fund CHXF
CHXF is something of a riddle today. Yes, the ETF touched a new 52-week low, but with a loss of just 0.5 percent at this writing, the fund looks significantly better/less bad than other all-China ETFs. A few months ago, the big Chinese banks reported impressive 2012 profit growth along with some tidy dividend increases.

That should have been good news for financials-heavy funds such as FXI and others, but the ETFs continued to trade lower. Increased profits and higher dividends are in the rear view mirror thanks to SHIBOR, but this could be an opportunity for CHXF to demonstrate its utility to investors.

CHXF debuted in September 2012, not long before Beijing unveiled a plan to push Shanghai-listed firms to up their payouts.

Additionally, there is something of a dividend growth story in China. Chinese dividend payers were heavily concentrated in just a few sectors in the late 1990s, but the country's dividend base has expanded in recent years. Of course none of this means CHXF will go up, it merely means the ETF is less vulnerable in a banking crisis because it holds no banks.

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