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5 ETFs Riding Higher on a China Stock Rally

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After a $3.9 trillion rout, Chinese stocks have staged a strong comeback this year. The MSCI China Index, which tracks more than $2 trillion of Chinese stocks listed home and abroad, has risen 12.4% in the initial weeks of 2023, marking the best start to a year since 1996.

The rally has been driven by a rebound in investor sentiment after China reopened following three years of a strict zero-COVID policy and Beijing’s pledge for additional policy support to boost the ailing domestic economy.

Given this, investors should tap the strength in China’s economy with the best-performing ETFs in the initial weeks of 2023. Global X China Biotech Innovation ETF (CHB - Free Report) , Invesco Golden Dragon China ETF (PGJ - Free Report) , WisdomTree China ex-State-Owned Enterprises Fund (CXSE - Free Report) , Global X China Innovation ETF (KEJI - Free Report) and Matthews China Active ETF (MCH - Free Report) are leading the way higher, gaining in double digits.

The easing of restrictions will help spur a recovery in the Chinese economy, which was driven close to contraction territory by continued COVID-linked disruptions. The latest shift in China’s COVID regulations also increased optimism for investors betting on further reopening in the wider region, stretching to Macao’s casino sector (read: China ETF Outperformers of Last Week).

In fact, China’s tech stocks have staged a $700 billion rally as the country reopens and a regulatory clampdown on the sector loosens, drawing the attention of international asset managers who fled the market in recent years. Foreign investors flocked to Chinese stocks and bought net 64 billion yuan ($9.5 billion) of stocks via the trading link between the mainland and Hong Kong in the first nine trading days of the New Year.

According to the Bank of America survey, investors are bullish on Chinese stocks. About 84% of survey respondents are “net long and overweight” on China, with 78% expecting a further 10-20% upside in China markets for the rest of this year.

Further, Chinese companies are expected to report their highest earnings growth in five years, per the data from Refinitiv, as economic reopening after COVID lockdowns and accommodative monetary policy bolstered hopes for higher profits. China's large and mid-cap companies' profits are expected to rise 16.2% in 2023, the fastest growth since 2017.

ETFs to Tap

Global X China Biotech Innovation ETF (CHB - Free Report) - Up 15.8%

Global X China Biotech Innovation ETF seeks to invest in companies that are directly involved in China’s biotechnology industry by tracking the Solactive China Biotech Innovation Index. It holds 26 stocks in its basket with a double-digit concentration on the top firm.

Global X China Biotech Innovation ETF has gathered $2.9 million in its asset base and charges 65 bps in annual fees. It trades in an average daily volume of 1,000 shares.

Invesco Golden Dragon China ETF (PGJ - Free Report) – Up 14.7%

Invesco Golden Dragon China ETF follows the NASDAQ Golden Dragon China Index, which offers exposure to the U.S. exchange-listed companies that are headquartered or incorporated in the People’s Republic of China. It holds a basket of 65 stocks with a higher concentration on the top firms. Consumer discretionary and communication services sectors take the largest share at 53.2% and 25.2%, respectively (read: Bet on China ETFs on a Solid Turnaround).

Invesco Golden Dragon China ETF has AUM of $256 million and charges 70 bps in annual fees. It trades in an average daily volume of 159,000 shares and has a Zacks ETF Rank #5 (Strong Sell).

WisdomTree China ex-State-Owned Enterprises Fund (CXSE - Free Report) – Up 13.7%

WisdomTree China ex-State-Owned Enterprises Fund offers exposure to Chinese stocks that are not state-owned enterprises, which is defined as government ownership of greater than 20%. It tracks the WisdomTree China ex-State-Owned Enterprises Index, charging 32 bps in annual fees. WisdomTree China ex-State-Owned Enterprises Fund holds 203 securities in its basket with key holdings in consumer discretionary, healthcare and information technology.

WisdomTree China ex-State-Owned Enterprises Fund has been able to manage $892.3 million in its asset base and trades in volume of 132,000 shares a day on average. It has a Zacks ETF Rank #5 with a Medium risk outlook.

Global X China Innovation ETF (KEJI - Free Report) – Up 13.4%

Global X China Innovation ETF is an actively managed fund that seeks to invest in companies that are economically tied to disruptive innovation in China. Disruptive themes targeted by KEJI may include advancements in technology, changing demographics and consumer preferences, and adaptations to the physical environment. The fund holds 45 securities in its baket with key holdings in consumer discretionary, industrials, information technology and healthcare.

Global X China Innovation ETF has accumulated $2.4 million in its asset base and trades in an average daily volume of around 500 shares. It charges 75 bps in annual fees (read: Top-Performing Broad Foreign ETFs of 2022).

Matthews China Active ETF (MCH - Free Report) – Up 13.3%

Matthews China Active ETF is an actively managed fund that seeks to invest in companies capable of sustainable growth based on the fundamental characteristics, including balance sheet information; the number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health. MCH holds 63 stocks in its basket with a tilt toward consumer discretionary with a 34.7% share. Financials and information technology also receive a double-digit allocation each.

Matthews China Active ETF has amassed $29.2 million in its asset base while trades in a volume of 18,000 shares a day on average. It charges 79 bps in fees per year from investors.

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