A Resurgent China ETF

ETF Trends

China exchange traded funds are slowly but surely starting to creep back into the limelight. A multi-month rally that has lifted some China ETFs to their highest levels since late 2013 will do that.

Of course, most of the focus has been on the iShares China Large-Cap ETF (FXI) , the largest and most heavily traded China ETF. FXI has earned the renewed focus investors are affording the ETF as the fund has surged nearly 16% over the past 90 days. [China ETFs Better Than You Think]

The SPDR S&P China ETF (GXC) deserves some love, too. After all, the $877.3 million GXC is one just 10 ETFs to have made a new 52-week high today. Investors that are familiar with China ETFs know that no two are exactly comparable to each other. Differences among individual holdings and sector weights, of course, create significant differences in terms of returns.

That has recently been true of FXI and GXC. The former has led due in part to ebbing concerns about the health of Chinese banks. FXI’s mammoth 53.8% weight to Chinese financial stocks, many of the state-controlled variety, has served the ETF at a time when some investors have been lured to low valuations and growing dividends courtesy of Chinese banks. [China's Dividend Growth]

By comparison, GXC’s weight to the financial services sector is “just” 30%. However, the State Street offering’s technology allocation is 21%, more than double that of FXI’s to the same sector. All of FXI’s tech exposure comes by way of a 10% weight to Tencent Holdings, China’s largest Internet company.

Speaking of Tencent, on Thursday Citigroup raised its price target on the stock to the equivalent of almost $18.60 from about $12.40. The bank also boosted its target on Baidu (BIDU) to $245 from $215, according to Barron’s. Shares of Bidu hit a new 52-week high today, but remain below $224, implying significant upside assuming Citi’s target is realized.

Tencent and Baidu are GXC’s largest and fourth-largest holdings, respectively, combining for 13.5% of the ETF’s weight.

Chinese Internet stocks spend plenty of time in the limelight, but one sector of Chinese stocks that arguably have not gotten the adulation they deserve this year is energy. That is somewhat when considering the size of China’s state-run oil companies and the strength of energy stocks in 2014.

Unnoticed or not, Chinese energy names are helping both FXI and GXC. Shares of PetroChina (PTR) and Cnooc (CEO) are up 41% and 13%, respectively, over the past six months. Both are top-10 holdings in GXC, an ETF that allocates 11.1% of its weight to the energy sector. [Gushing Over Energy ETFs]

SPDR S&P China ETF

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