Five ETFs Ride Higher in a China Stock Rally
Chinese stocks are making a comeback after a $3.9 billion rout. The MSCI China Index, which tracks over $2 trillion of Chinese stocks both at home and abroad has seen a 12.4% increase in the first weeks 2023. It is now the most impressive start to a calendar 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, Invesco Golden Dragon China ETF PGJ, WisdomTree China Fund for State-Owned Enterprises CXSE, Global X China Innovation ETF KEJI Matthews China Active ETF MCH leads the way higher, growing in double digits.
The loosening of restrictions will encourage a recovery in China’s economy. It was already struggling to recover from the ongoing 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. In the first nine trading days, foreign investors flock to Chinese stocks. They bought net 64 billion Yuan ($9.5 Billion) of stocks through the trading link between Hong Kong and the mainland.
According to a Bank of America survey, Chinese stocks are favored by investors. 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.
Refinitiv data shows that Chinese companies are likely to post their highest earnings growth for five years. This is due to the economic reopening following COVID lockdowns. The largest growth rate since 2017 is expected to be 16.2% for China’s large- and mid-cap businesses’ profits in 2023.
ETFs to Tap
Global X China Biotech Innovation ETF CHB – 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 has 26 stocks, with a concentration of the top company at double the rate.
Global X China Biotech Innovation ETF has accumulated $2.9 Million in its assets base and charges 65 bps annual fees. It trades at an average volume of 1,000 shares daily.
Invesco Golden Dragon China ETF (PGJ) – 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 has 65 stocks in its portfolio, with a greater concentration of the best firms. The largest shares are in the consumer discretionary and communications services sectors at 53.2% each (read: Bet on China ETFs for a Solid Turnaround).
The Invesco Golden Dragon China ETF is valued at $256 million. Annual fees are 70 bps. It trades at an average daily volume 159,000 shares per day and is ranked #5 by Zacks as a Strong Sell
WisdomTree China ex-State-Owned Enterprises Fund (CXSE) – Up 13.7%
WisdomTree China ex-State-Owned Enterprises Fund allows you to invest in Chinese stocks that aren’t state-owned. This means they do not own more than 20% of the stock. The WisdomTree China ex-State-Owned Enterprises Index is tracked and the annual fees are 32 bps. WisdomTree China ex-State-Owned Enterprises Fund has 203 securities in its portfolio, including key holdings in healthcare, consumer discretionary and information technology.
WisdomTree China’s ex-State-Owned Enterprises Fund managed $892.3 million and traded an average of 132,000 shares daily. It is ranked #5 by Zacks with a medium risk outlook.
Global X China Innovation ETF (KEJI) – Up 13.4%
Global X China Innovation ETF, an actively managed fund, seeks to invest only in Chinese companies that are economically connected to disruptive innovation. KEJI is interested in disruptive themes such as technological advancements, changes in demographics, consumer preferences, or adaptations to the environment. The fund has 45 securities in its baket, with important holdings in industrials, consumer discretionary and healthcare.
Global X China Innovation ETF is $2.4 million richer in assets and trades an average daily volume around 500 shares. It charges annual fees of 75 bps (read Top-Performing Broad Foreign ETFs for 2022).
Matthews China Active ETF (MCH) – 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 currently holds 63 stocks, with a 34.7% percentage. Information technology and financials also get double-digital allocations.
Matthews China Active ETF currently has $29.2 Million in its assets and trades an average of 18,000 shares per day. Investors pay a fee of 79 bps annually.
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WisdomTree China exStateOwned Enterprises ETF (CXSE): ETF Research Reports
Invesco Golden Dragon China ETF (PGJ): ETF Research Reports
Global X China Biotech Innovation ETF (CHB): ETF Research Reports
Global X Funds Global X China (KEJI): ETF Research Reports
Matthews China Active ETF (MCH): ETF Research Reports