Worries have been growing over the China market this year,
thanks to the country's huge debt load and falling growth rate.
Issues in the banking sector-largely in regards to interbank
rates-haven't helped matters, and actually are making some
investors quite skittish about buying into the market, especially
with such broad emerging market woes.
However, recent news in the space could suggest that the
market may have bottomed out, and that brighter days might be on
the horizon. After all, China shares have been trending higher in
recent sessions, and now some are growing increasingly bullish on
the nation thanks to some positive news from one of the country's
most troubled sectors, financials (see
Focus on These China ETFs for Outperformance
This new found optimism is largely due to a key earnings
report from Industrial Bank Company which revealed its first half
year results. In the report, the company revealed that net income
jumped by 27%, helping to push shares higher by roughly 4.5% in
the Chinese session.
It also didn't hurt that analysts at Citic Securities also
made a bullish call on the broad Chinese banking space. Analysts
at the firm,
according to a Bloomberg article
, said that banking stocks may rise 20% as concerns about
economic growth and financial risks ease, while the analysts also
recommended the company's shares.
This solid earnings report and some analyst optimism regarding
one of the country's banks helped to boost shares across the
board in China. This was particularly the case in a few
that are targeted on the nation's financial sector, as these
obviously have the most to gain or lose from changes in
perception over the financial sector (also see
Copper ETFs Surge on Solid China Trade Data
Below, we highlight two ETFs that were especially impacted by
this news, and may be interesting plays in the future should
positive trends continue in the space:
iShares China FTSE 25 Index Fund (
This is easily the most popular China ETF in the market, as
over $5 billion is invested in the fund and average daily volume
is over 17 million shares a day. The product tracks the FTSE
China 25 Index, a benchmark that holds about 25 Chinese stocks in
its basket, using a cap weighted methodology to weight the
Although energy and telecoms combine to make up roughly
one-third of the portfolio, financials take a plurality of assets
at nearly 50% of the total. This means that any news out of the
financial sector can have a huge impact on the overall return for
this famous ETF.
This is especially true considering that banks are three of
the top five biggest holdings in the fund. Fortunately though,
the news lately out of the space has been quite solid, easing
worries about many of the securities in this product (see
The Right and Wrong Ways to Invest in China
The ETF added about 2.3% on solid volume in the session after
the report, pushing the five day return for FXI to 6.2%.
Global X China Financials ETF (
This news also boosted the much more concentrated CHIX on the
day as well. This relatively unpopular fund follows the S-BOX
China Financials Index holding roughly three dozen financial
securities in its basket.
Large caps dominate this fund, while banking stocks take the
lion's share of assets, though real estate receives a large
component as well. Industrial and Commercial Bank of China and
China Construction Bank combine to make up over one-fifth of the
assets, while Bank of China isn't far behind at 9.9%.
Obviously with such a tight focus, the ETF can be prone to big
swings in a short time period, so volatility levels can be high.
Investors should also note that trading volumes and AUM are light
with this product, so bid ask spreads may be a bit wide.
Still, this ETF has been a star performer lately, adding
roughly 3.8% on better-than-average volume, pushing the five day
return to 8.3% for this often overlooked ETF (also read
KraneShares Launches China Internet ETF
Chinese financials have been securities to avoid lately, as
worries over debt, growth, and the government's backing of the
sector have caused share prices to fall. This has translated into
stiff losses for a number of China ETFs, including the most
popular fund in the segment, FXI.
Recent earnings and some positive analyst talk regarding one
of the firms in the space has led some to believe that the worst
may be over in the segment, especially if the current profit
trend from Industrial Bank can be replicated by others in the
space. If this is the case, look for the aforementioned ETFs to
lead the way, although it seems clear that more volatility is
likely to follow no matter what happens in the segment.
Want the latest recommendations from Zacks Investment
Research? Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
GLBL-X CHIN FIN (CHIX): ETF Research Reports
ISHARS-CHINA LC (FXI): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report