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China ETFs were crushed this year due to regulators’ crackdown on various sectors, mainly the all-important technology space. China’s government has revealed a five-year plan this month outlining tighter regulation of much of its economy. It said that new rules will be launched covering areas including national security, technology and monopolies.
In April, technology giant Alibaba accepted a record $2.8 billion fine after a probe found that it had abused its dominant market position for years, as quoted on a BBC article. Last month, Tencent was asked to end exclusive music licensing deals with record labels around the world. Also in July, some of the country's biggest online platforms — Kuaishou, Tencent's messaging tool QQ, Alibaba's Taobao and Weibo — were ordered to eliminate unsuitable child-related content, the article indicated.
No wonder, China ETFs are down on a year-to-date basis. KraneShares CSI China Internet ETF (KWEB - Free Report) is off the most by 42.6%, followed byInvesco Golden Dragon China ETF (PGJ - Free Report) , which is down 35.9% this year.
Against this backdrop, Hong Kong stocks jumped from an almost 10-month low after the market fell into a bear-territory last week. Tech stocks moved into an extremely oversold zone. “But the sluggish investor sentiment hasn’t fundamentally changed as they are still worried about regulatory uncertainties,”??? said Carl Cai, analyst at SPDB International in Hong Kong, as quoted on a source.
“It’s also a crucial time for global assets, as the US is inching closer to tapering its quantitative easing,” said Cai of SPDB, per the same source. “The period of sharp drop [in the Hong Kong market] should be over, but the market still hasn’t bottomed out.”
Investors should note that China’s economy grew 7.9% year over year in Q2 of 2021, slowing sharply from a record 18.3% expansion in Q1 and falling short of the market consensus of 8.1%. A slowdown in factory activity, higher raw material costs, and COVID-19 outbreaks stalled the recovery momentum. China has set an economic growth target of above 6% for 2021.
Against this backdrop, below we highlight a few China ETFs that have a low P/E and thus have higher chances of a rebound when markets shore up.
ETFs in Focus
Global X MSCI China Financials ETF ) – P/E 5.33X; Down 4.0% YTD
The underlying MSCI China Financials 10/50 Index follows a rules-based methodology that is designed to select the constituents of the MSCI China Index that are classified in the financials sector under the Global Industry Classification System. The fund charges 65 bps in fees.
Invesco China Technology ETF (CQQQ - Free Report) ) – P/E 8.03X; Down 6.98% YTD
The underlying FTSE China Incl A 25% Technology Capped Index measures and monitor the performance of publicly issued common equity securities of publicly traded companies that are open to foreign ownership and derive the majority of their revenues from the information technology sector in China, Hong Kong and Macau. The fund charges 70 bps in fees.
First Trust China AlphaDEX Fund (FCA - Free Report) ) – P/E 9.48X; Up 4.77% YTD
The underlying NASDAQ AlphaDEX China Index employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ China Index. The fund charges 80 bps in fees.
SPDR S&P China ETF (GXC - Free Report) ) – P/E 13.31X; Down 16.4% YTD
The underlying 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 fund charges 59 bps in fees.
KraneShares MSCI All China Index ETF ) – P/E 14.68X; Down 12.5% YTD
The underlying MSCI China All Shares Index seeks to track the equity market performance of companies based in China and listed in Mainland China, Hong Kong, and the United States. The fund charges 49 bps in fees.
KraneShares Bosera MSCI China A Share ETF (KBA - Free Report) ) – P/E 16.09X; Down 3.27% YTD
The underlying MSCI China A Inclusion Index is designed to track the progressive partial inclusion of A Shares in the MSCI Emerging Markets Index over time. The fund charges 59 bps in fees.
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Is This the Time to Buy China ETFs on Bargain?
China ETFs were crushed this year due to regulators’ crackdown on various sectors, mainly the all-important technology space. China’s government has revealed a five-year plan this month outlining tighter regulation of much of its economy. It said that new rules will be launched covering areas including national security, technology and monopolies.
In April, technology giant Alibaba accepted a record $2.8 billion fine after a probe found that it had abused its dominant market position for years, as quoted on a BBC article. Last month, Tencent was asked to end exclusive music licensing deals with record labels around the world. Also in July, some of the country's biggest online platforms — Kuaishou, Tencent's messaging tool QQ, Alibaba's Taobao and Weibo — were ordered to eliminate unsuitable child-related content, the article indicated.
No wonder, China ETFs are down on a year-to-date basis. KraneShares CSI China Internet ETF (KWEB - Free Report) is off the most by 42.6%, followed byInvesco Golden Dragon China ETF (PGJ - Free Report) , which is down 35.9% this year.
Against this backdrop, Hong Kong stocks jumped from an almost 10-month low after the market fell into a bear-territory last week. Tech stocks moved into an extremely oversold zone. “But the sluggish investor sentiment hasn’t fundamentally changed as they are still worried about regulatory uncertainties,”??? said Carl Cai, analyst at SPDB International in Hong Kong, as quoted on a source.
“It’s also a crucial time for global assets, as the US is inching closer to tapering its quantitative easing,” said Cai of SPDB, per the same source. “The period of sharp drop [in the Hong Kong market] should be over, but the market still hasn’t bottomed out.”
Investors should note that China’s economy grew 7.9% year over year in Q2 of 2021, slowing sharply from a record 18.3% expansion in Q1 and falling short of the market consensus of 8.1%. A slowdown in factory activity, higher raw material costs, and COVID-19 outbreaks stalled the recovery momentum. China has set an economic growth target of above 6% for 2021.
Against this backdrop, below we highlight a few China ETFs that have a low P/E and thus have higher chances of a rebound when markets shore up.
ETFs in Focus
Global X MSCI China Financials ETF ) – P/E 5.33X; Down 4.0% YTD
The underlying MSCI China Financials 10/50 Index follows a rules-based methodology that is designed to select the constituents of the MSCI China Index that are classified in the financials sector under the Global Industry Classification System. The fund charges 65 bps in fees.
Invesco China Technology ETF (CQQQ - Free Report) ) – P/E 8.03X; Down 6.98% YTD
The underlying FTSE China Incl A 25% Technology Capped Index measures and monitor the performance of publicly issued common equity securities of publicly traded companies that are open to foreign ownership and derive the majority of their revenues from the information technology sector in China, Hong Kong and Macau. The fund charges 70 bps in fees.
First Trust China AlphaDEX Fund (FCA - Free Report) ) – P/E 9.48X; Up 4.77% YTD
The underlying NASDAQ AlphaDEX China Index employs the AlphaDEX stock selection methodology to select stocks from the NASDAQ China Index. The fund charges 80 bps in fees.
SPDR S&P China ETF (GXC - Free Report) ) – P/E 13.31X; Down 16.4% YTD
The underlying 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 fund charges 59 bps in fees.
KraneShares MSCI All China Index ETF ) – P/E 14.68X; Down 12.5% YTD
The underlying MSCI China All Shares Index seeks to track the equity market performance of companies based in China and listed in Mainland China, Hong Kong, and the United States. The fund charges 49 bps in fees.
KraneShares Bosera MSCI China A Share ETF (KBA - Free Report) ) – P/E 16.09X; Down 3.27% YTD
The underlying MSCI China A Inclusion Index is designed to track the progressive partial inclusion of A Shares in the MSCI Emerging Markets Index over time. The fund charges 59 bps in fees.