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After a Solid 2019, 5 China ETFs to Keep Rallying in 2020

Sanghamitra Saha

China investing fell into a tight spot in mid-2019 thanks to the escalation in trade war with the United States. Further, protests in Hong Kong turned investors away from China investing.iShares China Large-Cap ETF FXI was almost flat in the first nine months of 2019. But things started to look up from the fourth quarter on the announcement of the U.S.-Sino phase-one trade deal. Investors should note that after wrangling for almost two years, the United States and China decided to strike a preliminary trade deal on Jan 13.

Apart from the relief related to trade, easy money policy in China has been helping stocks. The People’s Bank of China slashed a key interbank interest rate on Nov 18, marking the first such easing since 2015. This apart, China’s central bank announced several cuts in reserve requirement ratios (RRRs) in 2019 to release billions of yuan for some small and medium-sized banks.

The People's Bank of China (PBOC) opted for further easing to start 2020 and injected about $115 billion into the country’s financial system by slashing RRR for commercial lenders across the board by 50 basis points. Post this, the CSI 300 of Shanghai- and Shenzhen-listed companies touched their highest level since February 2018.

Not only monetary policy, Beijing is beefing up fiscal stimulus also with the state planner recently approving eight fixed-asset investment projects in November worth of a combined 7.1 billion yuan. The move was to fight the pressure building from sluggish domestic demand.Meanwhile, a survey indicated continued improvement in China’s manufacturing sector.

Major index providers are raising the weights of China A-shares in their global benchmarks, which will lead to inflows of billions of dollars into those stocks. Global index compiler MSCI Inc. increased the weights of China A shares in certain indexes by hiking the inclusion factor to 20% 15% late November onward. MSCI added China A shares to its widely tracked indexes for the first time in June 2018 while other index providers like FTSE Russell and S&P followed suit.

How Did China ETFs Perform in 2019?

Despite the ebb and flow in trade war, the Chinese consumer and technology sector outshined in the year with related ETFs returning in the range of 43-49%. Per analysts, the trade war deal could help China ease monetary policy further.

Growing consumerism has been a tailwind for the China market. Total retail sales of consumer goods are expected to have jumped 8% year over year in 2019. Higher sales of fresh food and e-commerce have kept consumer stocks charged up.

Against this backdrop, below we highlight a few China ETFs that outdid in 2019 and are expected to maintain the momentum in 2020, despite the recent flare-up in the Middle East tensions.

VanEck Vectors ChinaAMC SME-ChiNext ETF CNXT

The underlying SME-ChiNext 100 Index tracks the performance of the 100 largest and most liquid China A-share stocks listed and trading on the Small and Medium Enterprise Board and the ChiNext Board of the Shenzhen Stock Exchange. The fund has added 5% so far in January and gained 45% in the past year (read: China ETFs Surge: Will the Upside Continue?).

Global X MSCI China Information Technology ETF CHIK

The underlying MSCI China Information Technology 10/50 Index tracks the performance of companies in the information technology sector in the MSCI China Index. The fund has added 1.9% so far in 2020 and gained 49% in the past year.

KraneShares CSI China Internet ETF KWEB

The underlying CSI Overseas China Internet Index is designed to measure the performance of the investable universe of publicly traded China-based companies whose primary business or businesses are in the Internet and Internet-related sectors. The fund has climbed 6.6% so far this new year and was up 32.2% past year (read: 5 High-Beta ETFs to Buy on Trade Talk Hopes).

Invesco Golden Dragon China ETF PGJ

The underlying NASDAQ Golden Dragon China Index comprises 38 U.S. exchange-listed stocks of companies that derive the majority of their revenues from the Peoples Republic of China. The fund gained about 32% past year and is up 5.7% in 2020.

Global X MSCI China Consumer Discretionary ETF CHIQ

The underlying MSCI China Consumer Discretionary 10/50 Index follows a rules-based methodology that is designed to select constituents of the MSCI China Index. The fund tacked on 47.5% gains past year and is up 3.7% in the year-to-date frame.