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Be Thankful to These China ETFs This Year

Sanghamitra Saha
BOJA vs. SBUX: Which Stock Is the Better Value Option?

China’s economy and market have recently hit headlines for several reasons, be it the 19th National Congress of the Communist Party or the shadow banking crackdown or slowing GDP growth in the third quarter, a sky-high debt level and a property market bubble.

But nothing could stop solid returns stocks and ETFs. The economy expanded 6.8% year over year in the third quarter, in line with the Reuters estimate and down from 6.9% in the second quarter.

The country’s 19th National Congress of the Communist Party meeting indicated “coordinated policies to reduce financial risks, more institutionalized environment policies, and accelerated state-owned enterprise (SOE) reforms,” as viewed by HSBC’s Greater China Economist Julia Wang (read: Follow These ETFs as China's 19th National Congress Begins).

Chinese President Xi Jinping also indicated that “China will relax market access for foreign investment and expand access to its services sector, as well as deepen market-oriented reform of its exchange rate and financial system, while at the same time strengthening state firms.” Also, China “opened up the domestic bond market and the fund management sector to foreign companies.”

Moreover, MSCI (MSCI) announced in June that it would add China A shares in the MSCI Emerging Markets Index and the MSCI ACWI Index, beginning June 2018. The move marks China’s credibility as a major investment destination in the world (read: What Does the MSCI Inclusion Mean for China A Shares and ETFs?)

If these were not enough, the latest move of a clampdown on China’s shadow banking system is being much-admired by some analysts as they view the step as a key step toward lowering risk in China’s financial system. The government orders for shadow banking, scheduled to be enacted in 2019, are the last among the steps taken toward lowering financial risk that have been a cause for concern for long.

However, thanks to protracted tightness in liquidity conditions, China’s 10-year treasury yields hovered around the highest level since late 2014 in late October. While this is not good for bonds, Chinese financial stocks must have gained from this.

Overall, the economy seems to be heading toward the right direction. The People's Bank of China quoted its governor citing strong household spending. Probably, all these factors and strategies add up to strong gains in the below-mentioned ETFs. Investors must be thankful to these ETFs ahead of Thanksgiving. The gains in these ETFs were stellar compared with 14.4% returns offered by the S&P 500 index (as of Nov 20, 2017).

Guggenheim China Technology ETF CQQQ – Up 84.7%

The fund looks to track the AlphaShares China Technology Index. Tencent Holdings and Alibaba Group Holding-Sp ADR are the top two holdings of the fund. The fund charges 70 bps in fees.     

WisdomTree China ex-State-Owned Enterprise ETF CXSE – Up 82.7%

The underlying index of the fund measures the performance of Chinese stocks that are not state-owned enterprises. The top sectors are Information Technology (34.9%) and Consumer Discretionary (21.9%). The fund charges 32 bps in fees.  

KraneShares CSI China Internet ETF KWEB – Up 72.2%

The fund looks to track the CSI Overseas China Internet Index. Its primary business or businesses are in the Internet and Internet-related sectors. The fund charges 72 bps in fees (read: 4 Hot ETF Deals for Singles' Day).

Global X China Consumer ETF CHIQ– Up 60.4%

The fund is designed to reflect the performance of the consumer sector in China. The fund charges 65 bps in fees. Automobiles & Components (24.9%), Food Beverage & Tobacco (16.3%) and Travel (13.9%) hold the top three spots in the fund.  

PowerShares Golden Dragon China ETF PGJ)– Up 58.0%

The underlying index currently comprises some U.S. exchange-listed stocks of companies that derive a majority of their revenues from the Peoples Republic of China. The fund charges 70 bps in fees. Information Technology (49.5%) and Consumer Discretionary (33.9%) are the top two sectors (read: Forget Google, Play Baidu ETFs on Upbeat Q2).   

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