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China ETFs have long been crushed due to regulators’ crackdown on various sectors, mainly the all-important technology space. The stringent COVID-related policies and lockdown as well as a crisis in the debt-laden real estate sector also weighed on the Chinese equities this year.
However, things have been changing for the better. China ETFs that were hit hard earlier in the year started to spring higher. Chinese tech equities started rebounding in late April as the nation’s top political leaders planned to boost economic stimulus to promote growth. There could also be an easing of the continued clampdown on tech firms.
iShares MSCI China ETF (MCHI - Free Report) was off about 13.5% in the first half of this year, beating the S&P 500. The fund added 7.6% past month. Hence, China ETFs may continue to register its winning momentum in Q3 (read: Top ETF Stories of Q2 That Should be Watched in Q3).
Investors should note that China is becoming a world leader in advanced Information Technology hardware production, focusing on 5G equipment and semiconductors. Since the launch of the Shanghai and Shenzhen Stock Connect programs in 2014 and 2016, Mainland investors now represent 8.5% of Hong Kong's free-float market capitalization. This number is projected to increase significantly in the coming years, per KraneShares research.
Citigroup added its asset allocation to China and Japan earlier this year, said Ken Peng of Citi Private Bank, published on CNBC. According to Peng, China is likely to see easing in both monetary and fiscal policy. As against the developed economies that are considering tightening of policies, China has slashed interest rates to boost its economy. This policy differential may steer investors toward China, which probably offers value now (read: What Lies Ahead for China ETFs in the Year of Tiger?).
Valuations are also cheap for many China ETFs. Many sport P/E ratios lower than the S&P 500 (21.70X). Below we highlight a few China ETFs that offer bargains at the current level.
ETFs in Focus
Global X MSCI China Financials ETF – Down 2.9% YTD; P/E: 5.66X
The underlying MSCI China Financials 10/50 Index follows a rules-based methodology that is designed to select constituents of the MSCI China Index that are classified in the financial sector under the Global Industry Classification System. The fund charges 65 bps in fees.
First Trust China AlphaDEX Fund (FCA - Free Report) – Down 4.9% YTD; P/E: 8.27X
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.
Global X MSCI China Real Estate ETF – Down 5.4% YTD; P/E: 5.28X
The underlying MSCI China Real Estate 10/50 Index tracks the performance of companies in the real estate sector in the MSCI China Index. The fund charges 66 bps in fees.
iShares China Large-Cap ETF(FXI - Free Report) – Down 6.8% YTD; P/E: 14.19X
The underlying FTSE China 50 Index tracks the performance of the largest companies in the Chinese equity market that are available to international investors. The fund charges 74 bps in fees.
Global X MSCI China Consumer Staples ETF – Down 7.5% YTD; P/E: 20.89X
The underlying MSCI China Consumer Staples 10/50 Index tracks the performance of companies in the consumer staples sector in the MSCI China Index. The fund charges 65 bps in fees.
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Is This the Time to Buy China ETFs?
China ETFs have long been crushed due to regulators’ crackdown on various sectors, mainly the all-important technology space. The stringent COVID-related policies and lockdown as well as a crisis in the debt-laden real estate sector also weighed on the Chinese equities this year.
However, things have been changing for the better. China ETFs that were hit hard earlier in the year started to spring higher. Chinese tech equities started rebounding in late April as the nation’s top political leaders planned to boost economic stimulus to promote growth. There could also be an easing of the continued clampdown on tech firms.
If these were not enough, United States and Chinese officials discussed economic sanctions and tariffs amid reports that president Biden may withdraw some of the trade levies imposed by former President Donald Trump. China is also planning to start a $75 billion infrastructure fund as a means to prop up its economy.
iShares MSCI China ETF (MCHI - Free Report) was off about 13.5% in the first half of this year, beating the S&P 500. The fund added 7.6% past month. Hence, China ETFs may continue to register its winning momentum in Q3 (read: Top ETF Stories of Q2 That Should be Watched in Q3).
Investors should note that China is becoming a world leader in advanced Information Technology hardware production, focusing on 5G equipment and semiconductors. Since the launch of the Shanghai and Shenzhen Stock Connect programs in 2014 and 2016, Mainland investors now represent 8.5% of Hong Kong's free-float market capitalization. This number is projected to increase significantly in the coming years, per KraneShares research.
Citigroup added its asset allocation to China and Japan earlier this year, said Ken Peng of Citi Private Bank, published on CNBC. According to Peng, China is likely to see easing in both monetary and fiscal policy. As against the developed economies that are considering tightening of policies, China has slashed interest rates to boost its economy. This policy differential may steer investors toward China, which probably offers value now (read: What Lies Ahead for China ETFs in the Year of Tiger?).
Valuations are also cheap for many China ETFs. Many sport P/E ratios lower than the S&P 500 (21.70X). Below we highlight a few China ETFs that offer bargains at the current level.
ETFs in Focus
Global X MSCI China Financials ETF – Down 2.9% YTD; P/E: 5.66X
The underlying MSCI China Financials 10/50 Index follows a rules-based methodology that is designed to select constituents of the MSCI China Index that are classified in the financial sector under the Global Industry Classification System. The fund charges 65 bps in fees.
First Trust China AlphaDEX Fund (FCA - Free Report) – Down 4.9% YTD; P/E: 8.27X
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.
Global X MSCI China Real Estate ETF – Down 5.4% YTD; P/E: 5.28X
The underlying MSCI China Real Estate 10/50 Index tracks the performance of companies in the real estate sector in the MSCI China Index. The fund charges 66 bps in fees.
iShares China Large-Cap ETF(FXI - Free Report) – Down 6.8% YTD; P/E: 14.19X
The underlying FTSE China 50 Index tracks the performance of the largest companies in the Chinese equity market that are available to international investors. The fund charges 74 bps in fees.
Global X MSCI China Consumer Staples ETF – Down 7.5% YTD; P/E: 20.89X
The underlying MSCI China Consumer Staples 10/50 Index tracks the performance of companies in the consumer staples sector in the MSCI China Index. The fund charges 65 bps in fees.