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Buy China on the Dip with These 3 ETFs

Zacks Equity Research

China investing has become increasingly dicey as of late. The country recently reported a somewhat bearish figure for quarterly GDP, coming in below estimates and signaling to some that a slowdown was underway.

This news pushed demand for Chinese investments quite low and led to some more losses for the emerging economy. Add in recent fears of health pandemics and strange animal deaths, and many are opting to stay far away from the nation.

However, there are still plenty of reasons to be optimistic about China in the near term. Inflation in the country slowed down to a 2.1% annual rate, a far cry from the February figure of 3.2%. This suggested to many that China would not have to tighten that much in the near term, a potentially bullish catalyst for the country.

Other Factors

Furthermore, some are expecting China to widen the yuan’s trading bands at some point in the near future. This means that the yuan could be allowed to appreciate a bit more against the dollar, potentially boosting yuan-based investments when repatriated back to dollars (read: Do ETFs Suggest that the China Panic is Over?).

If this happens, it could also help to refocus China’s economy on domestic consumption. Chinese officials have been trying to accomplish this rebalancing for years, and a strong yuan—along with weakened commodities—could do the trick.

How to Play

Few Chinese companies trade in the U.S., so an ETF play could make more sense for this emerging economy. However, many of these funds have had a rough start to 2013, falling by the wayside compared to other emerging markets.

Yet, given some of the fundamentals in the economy, and the possibility of a rebound, it could be time to jump back in to China ETFs. Fortunately, there are several plays to target this market, and we have highlighted three of the most popular choices below:

iShares FTSE China 25 Index Fund (FXI)

Launched in October 2004, this is the largest and most popular ETF targeting China. The fund provides broad exposure to the Chinese equity market with a focus on large cap firms. It seeks to match the price and yield of the FTSE China 25 Index, before fees and expenses.

With 26 securities in its basket, the fund is not widely spread across individual securities and sectors. It puts over 59% of the assets in the top 10 holdings. China Construction Bank, China Mobile, and Industrial and Commercial Bank Of China take the top three positions that make up for a combined 26% share.

The fund is highly concentrated in the financial sector with roughly 60% of FXI followed by telecom (16%). The ETF has managed to amass over $6.1 billion in assets, and it has a huge volume of about 16 million shares per day on average.

This implies that investors do not have to pay an extra cost beyond the expense ratio of 0.72%. It is also worth noting that the product yields a solid 2.27% in dividends per annum (read: Three China ETFs Still Going Strong).


This fund was launched by State Street in March 2007. It tracks the S&P/Citigroup BMI China Index with a focus on large caps, giving investors exposure to about 221 firms. The fund has an asset base of $1 billion while charging 0.59% a year in fees.  

GXC invests nearly 45% of assets in top ten holdings with the top three firms being the same as FXI. Financials again take the top spot, but at just 36% of assets, while energy, technology and industrials round out the top four (read: Financial ETFs Set to Rally in Earnings Season).

GXC sees about 200,000 shares in volume a day, with a yield hitting 2%. So while the bid ask spreads might be a bit wider here, the fund is a bit cheaper and could potentially offer up a more spread out asset profile.

iShares MSCI China Index Fund (MCHI)

This large cap focused ETF from iShares also tracks the China market, this time by following the MSCI China Index. With AUM of $1.1 billion, the fund provides exposure to 136 companies while charging a modest 0.60% in fees per year.

Exposure is tilted towards financials, although they make up about 41% of assets compared to over half in FXI. Rounding out the fund is 17% in energy and 11% in telecom, while assets are relatively well spread out from an individual security perspective.

MCHI pays a decent yield of 1.87%, while its volume comes in around 560,000 shares a day. This suggests that the product should have relatively tight bid ask spreads, while still being a lower cost option in the segment (see more ETFs in the Zacks ETF Center).

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Read the analyst report on FXI

Read the analyst report on GXC

Read the analyst report on MCHI

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