China ETFs Set to Surge in 2022
After a tumultuous year, China stocks have lately started to build up positive momentum. This is especially true as China’s large-cap CSI 300 Index gained 0.3% over the past week after falling about 5% last year. The rounds of positive news have renewed investors’ enthusiasm.
Amid improving trends, China ETFs are set to surge. While there are several options in the space, betting on the popular funds might be compelling choices. These include KraneShares CSI China Internet ETF KWEB, iShares MSCI China ETF MCHI, iShares China Large-Cap ETF FXI, SPDR S&P China ETF GXC and Invesco China Technology ETF CQQQ.
The world’s second-largest economy grew 4% — faster than expected — in the fourth quarter, per the latest data from China’s National Bureau of Statistics. In 2021, the economy expanded 8.1% and reached the $18 trillion mark. Though full-year growth was below the market’s expectation for around 8.4%, it represents the fastest pace of growth since 2011. In fact, the numbers marked a strong recovery after growth plummeted to a 44-year low of 2.2% in 2020 due to COVID-19 outbreak in Wuhan and months of lockdowns.
The rebound was led by a strong trade performance and a recovery in retail sales. China’s exports surged nearly 30% last year on solid global demand as countries reopened from pandemic lockdowns. Retail sales climbed 12%, reflecting a solid turnaround from the 3.9% dip in 2020 and underscoring the resilience of China’s spending power amid myriad challenges.
With the government’s strengthening measures and policies to boost consumption, retail sales are expected to grow 6% this year, according to a Hong Kong-based think tank.
Additionally, China surprisingly cut the borrowing costs of its medium-term loans for the first time since April 2020 to prop up economic growth, being hit by repeated virus outbreaks and property-market slump. The People’s Bank of China (PBOC) reduced the interest rate on 700-billion-yuan ($110 billion) worth of one-year medium-term lending facility loans by 10 bps to 2.85%. The central bank also lowered the borrowing costs of seven-day reverse repurchase agreements, or repos, by the same margin to 2.10%. The move will continue to encourage credit supply. With this, China has adopted diverging policies from other major central banks around the world.
Further, last year’s plunge has made Chinese stocks attractive and cheaper. An analyst at JP Morgan (JPM) stated that the MSCI China Index will soar some 40% in 2022 (read: Best & Worst Performing ETF Zones of 2021).
However, China’s economic outlook has been clouded by growing concerns about the effects of Beijing’s regulatory crackdown on businesses, the financial health of some of the country’s biggest property firms and the spread of the Omicron variant of COVID-19.
ETFs to Bet On
KraneShares CSI China Internet ETF (KWEB)
KraneShares CSI China Internet ETF provides concentrated exposure to China-based companies whose primary business or businesses are focused on Internet and Internet-related technology. KraneShares CSI China Internet ETF tracks the CSI China Overseas Internet Index and holds 56 securities in its basket with higher concentration on the top firm.
KraneShares CSI China Internet ETF has amassed $7.3 billion in its asset base and charges 70 bps in annual fees from investors. KWEB trades in an average daily volume of 17 million shares and currently has a Zacks ETF Rank #5 (Strong Sell) with a High-risk outlook.
iShares MSCI China ETF (MCHI)
iShares MSCI China ETF targets the Chinese stock market and follows the MSCI China Index. Holding 626 securities in its basket, the fund is highly concentrated on the top firm. From a sector look, about 29.7% of the portfolio is allotted to consumer discretionary, while communication (18.7%) and financials (14.9%) round off the next two spots.
iShares MSCI China ETF has amassed $6.1 billion in its asset base while charging 57 bps in annual fees. Volume is also solid as it exchanges nearly 5.6 million shares daily on average. The ETF has a Zacks ETF Rank #5 with a Medium risk outlook.
iShares China Large-Cap ETF (FXI)
iShares China Large-Cap ETF offers exposure to large companies in China by tracking the FTSE China 50 Index. It holds 50 stocks in its basket with a slight tilt toward the top three firms. iShares China Large-Cap ETF has key holdings in the consumer discretionary sector with 33.8% share while financials (28.3%) and communication (18.6%) round off the next two spots.
iShares China Large-Cap ETF has AUM of $5.1 billion and an expense ratio of 0.74%. It trades in an average daily volume of 31.7 million shares and has a Zacks ETF Rank #5 with a Medium risk outlook (read: Top-Performing Broad Foreign ETFs of 2021).
SPDR S&P China ETF (GXC)
SPDR S&P China ETF follows the S&P China BMI Index and seeks to provide exposure to the publicly traded companies domiciled in China that are available to foreign investors. It holds 883 stocks in its basket with a higher concentration on the top firm. SPDR S&P China ETF has the largest allocation in consumer discretionary at 26.3%, while communication services and financials round off the next two spots.
SPDR S&P China ETF has amassed $1.5 billion in its asset base and sees an average daily volume of 140,000 shares. The fund charges investors 59 bps in annual points and has a Zacks ETF Rank #5 with a Medium risk outlook.
Invesco China Technology ETF (CQQQ)
Invesco China Technology ETF follows the FTSE China Incl A 25% Technology Capped Index, which includes constituents of the FTSE China Index and FTSE China A Stock Connect Index that are classified as information technology securities, including China A-shares and China B-shares. It holds 117 stocks in its basket with a concentration on the top three firms (read: Is This the Time to Buy China ETFs on Bargain?).
Invesco China Technology ETF manages an asset base of $1.4 billion while charges 70 bps in fees per year. It trades in volume of 293,000 shares per day on average and has a Zacks ETF Rank #5 with a High risk outlook.
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iShares China LargeCap ETF (FXI): ETF Research Reports
SPDR S&P China ETF (GXC): ETF Research Reports
Invesco China Technology ETF (CQQQ): ETF Research Reports
iShares MSCI China ETF (MCHI): ETF Research Reports
KraneShares CSI China Internet ETF (KWEB): ETF Research Reports
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