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In early January, 2023, China lifted its zero-covid policy bringing an end to its three-year stringent restrictions which saw its borders effectively closed from the rest of the world. Many economists predict that the world’s second-largest economy will see a rebound in its growth in the coming days due to reopening.
As per an IMF report in January 2023, China’s economy will likely expand 5.2% this year as compared to last year’s 3% with the Chinese economy expected to contribute about a third of the global growth this year. Pent-up consumer spending is one of the reasons behind China’s upbeat growth prospects expected this year.
According to Goldman Sachs, China stocks could surge as high as 24% this year on the back of the increased risk appetite shown by investors, as quoted on CNBC. The period around the lunar New Year saw the MSCI China index spike around 60% since its October lows, but since then inch toward the market correction territory.
Any Wall of Worry?
The Real Estate market in China makes up about 25% of the Chinese GDP, as quoted on a CNBC article. The country’s real estate sector was in crisis before due to heavy reliance on debt. Though China clamped down on the sector in 2020, the country started to loosen restrictions on financing for the sector over the last few months, the CNBC article notified.
Such efforts looks promising with growth seen in rising sales of houses. More urban centres across the country reported higher prices than declines in the first quarter of 2023.
The rising political tensions between the United States and China on the backdrop of the downed Chinese balloons and the geopolitical issue between China and Taiwan, along with shrinking population in China and declined productivity growth levels could prove to be hindrances for that country’s projected growth. However, China’s potential for economic growth and consumer-driven demand could trump the persisting tensions.
ETFs in Focus
We believe it is prudent to discuss a few China ETFs that have gained double digits in the past three months (as of Feb 22, 2023).
iShares MSCI China ETF (MCHI - Free Report) - up 17.17% in the past three months
The iShares MSCI China ETF seeks investment results that correspond generally to the price and yield performance of the MSCI China Index. It holds a basket of 622 stocks, with Consumer Discretionary, Communication and Financials holdings taking the largest shares at 30.22%, 19.52% and 15.23%, respectively.
The iShares MSCI China ETF has amassed $8.9 billion in its asset base and charges 58 bps in annual fees. It trades at an average daily volume of about 6.8 million shares.
KraneShares CSI China Internet ETF (KWEB - Free Report) - up 23.02% in the past three months
The KraneShares CSI China Internet ETF seeks to invest in companies that are related to the Internet or Internet-related technology by tracking the CSI Overseas China Internet Index. The fund holds 33 securities in its basket. With the top 10 securities taking 61.18% of assets, Tencent Holdings Ltd and Alibaba Group Holding Ltd took the top spots with 11.41% and 9.06%, respectively.
KraneShares CSI China Internet ETF accumulated $7.04 billion in its asset base, charging 68 bps as annual fees. It trades at a monthly average volume of about 18,500 shares.
WisdomTree China ex-State-Owned Enterprises ETF (CXSE - Free Report) - up 11.44% in the past three months
The fund seeks to track the investment results of Chinese companies that are not state-owned enterprises, which is defined as government ownership of greater than 20%. It holds 203 securities in its basket with a tilt toward Consumer Discretionary with a 33.52% share.
WisdomTree China ex-State-Owned Enterprises ETF has gathered $825.8 million in its asset base and has a monthly average trade volume of about 147,000 shares. It charges 32 bps as its annual fee.
SPDR S&P China ETF (GXC - Free Report) - up 15.28% in the past three months
The SPDR S&P China ETF, before expenses, seeks to closely match the returns and characteristics of the total return performance of the S&P China BMI Index. The fund holds 939 securities in its basket, with Consumer Discretionary, Communication Services and Financials taking the top spots all with double-digit concentration. Tencent Holdings Ltd had 11.13% of the weight.
The fund amassed $1.32 billion in its asset base, charging 59 bps as annual fees. It trades at an average volume of about 208,000 shares.
IShares China Large-Cap ETF (FXI - Free Report) - up 17.25% in the past three months
The iShares China Large-Cap ETF tracks the investment results of the FTSE China 50 Index composed of large-capitalization Chinese equities that trade on the Hong Kong Stock Exchange. It holds a basket of 50 shares, having key holdings in Consumer Discretionary, Financials and Communication with 33.39%, 26.73% and 19.86% of the asset weight, respectively.
iShares China Large-Cap ETF has been able to manage $5.9 billion in its asset base and charges 74 bps as annual fees. It trades at an average daily volume of about 29 million shares.
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5 ETFs to Tap on China's High Growth Prospects
In early January, 2023, China lifted its zero-covid policy bringing an end to its three-year stringent restrictions which saw its borders effectively closed from the rest of the world. Many economists predict that the world’s second-largest economy will see a rebound in its growth in the coming days due to reopening.
As per an IMF report in January 2023, China’s economy will likely expand 5.2% this year as compared to last year’s 3% with the Chinese economy expected to contribute about a third of the global growth this year. Pent-up consumer spending is one of the reasons behind China’s upbeat growth prospects expected this year.
According to Goldman Sachs, China stocks could surge as high as 24% this year on the back of the increased risk appetite shown by investors, as quoted on CNBC. The period around the lunar New Year saw the MSCI China index spike around 60% since its October lows, but since then inch toward the market correction territory.
Any Wall of Worry?
The Real Estate market in China makes up about 25% of the Chinese GDP, as quoted on a CNBC article. The country’s real estate sector was in crisis before due to heavy reliance on debt. Though China clamped down on the sector in 2020, the country started to loosen restrictions on financing for the sector over the last few months, the CNBC article notified.
Such efforts looks promising with growth seen in rising sales of houses. More urban centres across the country reported higher prices than declines in the first quarter of 2023.
The rising political tensions between the United States and China on the backdrop of the downed Chinese balloons and the geopolitical issue between China and Taiwan, along with shrinking population in China and declined productivity growth levels could prove to be hindrances for that country’s projected growth. However, China’s potential for economic growth and consumer-driven demand could trump the persisting tensions.
ETFs in Focus
We believe it is prudent to discuss a few China ETFs that have gained double digits in the past three months (as of Feb 22, 2023).
iShares MSCI China ETF (MCHI - Free Report) - up 17.17% in the past three months
The iShares MSCI China ETF seeks investment results that correspond generally to the price and yield performance of the MSCI China Index. It holds a basket of 622 stocks, with Consumer Discretionary, Communication and Financials holdings taking the largest shares at 30.22%, 19.52% and 15.23%, respectively.
The iShares MSCI China ETF has amassed $8.9 billion in its asset base and charges 58 bps in annual fees. It trades at an average daily volume of about 6.8 million shares.
KraneShares CSI China Internet ETF (KWEB - Free Report) - up 23.02% in the past three months
The KraneShares CSI China Internet ETF seeks to invest in companies that are related to the Internet or Internet-related technology by tracking the CSI Overseas China Internet Index. The fund holds 33 securities in its basket. With the top 10 securities taking 61.18% of assets, Tencent Holdings Ltd and Alibaba Group Holding Ltd took the top spots with 11.41% and 9.06%, respectively.
KraneShares CSI China Internet ETF accumulated $7.04 billion in its asset base, charging 68 bps as annual fees. It trades at a monthly average volume of about 18,500 shares.
WisdomTree China ex-State-Owned Enterprises ETF (CXSE - Free Report) - up 11.44% in the past three months
The fund seeks to track the investment results of Chinese companies that are not state-owned enterprises, which is defined as government ownership of greater than 20%. It holds 203 securities in its basket with a tilt toward Consumer Discretionary with a 33.52% share.
WisdomTree China ex-State-Owned Enterprises ETF has gathered $825.8 million in its asset base and has a monthly average trade volume of about 147,000 shares. It charges 32 bps as its annual fee.
SPDR S&P China ETF (GXC - Free Report) - up 15.28% in the past three months
The SPDR S&P China ETF, before expenses, seeks to closely match the returns and characteristics of the total return performance of the S&P China BMI Index. The fund holds 939 securities in its basket, with Consumer Discretionary, Communication Services and Financials taking the top spots all with double-digit concentration. Tencent Holdings Ltd had 11.13% of the weight.
The fund amassed $1.32 billion in its asset base, charging 59 bps as annual fees. It trades at an average volume of about 208,000 shares.
IShares China Large-Cap ETF (FXI - Free Report) - up 17.25% in the past three months
The iShares China Large-Cap ETF tracks the investment results of the FTSE China 50 Index composed of large-capitalization Chinese equities that trade on the Hong Kong Stock Exchange. It holds a basket of 50 shares, having key holdings in Consumer Discretionary, Financials and Communication with 33.39%, 26.73% and 19.86% of the asset weight, respectively.
iShares China Large-Cap ETF has been able to manage $5.9 billion in its asset base and charges 74 bps as annual fees. It trades at an average daily volume of about 29 million shares.