While there have been pockets of strength and some impressive ones at that among emerging markets equities this year, Chinese stocks cannot be included in that conversation.
As of Dec. 19, the widely observed MSCI China Index is down 12.1% year-to-date while the S&P 500 is higher by 26.1%, confirming Chinese equities just haven’t been worth the added risk relative to domestic equivalents. Compounding those woes is the point that 2023 will be the fifth year in the past seven that China benchmark has lagged the S&P 500.
Financial markets in the world’s second-largest economy have been crimped by factors including demographics, debt and geopolitical issues, all of which have served to stunt investors’ interest in Chinese assets.
“China is facing a challenge in managing aggregate demand and inflationary pressures from deleveraging of local government and property companies balance sheets,” notes Chetan Ahya, Morgan Stanley's Chief Asia Economist.” Policymakers have embarked on coordinated monetary and fiscal easing, which would help to bring about a modest recovery in 2024.”
That’s not a ringing endorsement of venturing into China next year, but for risk-tolerant investors, some China-specific ETFs could be rewarding at the tactical level next year. Here are a few to consider.
Global X MSCI China Information Technology ETF (CHIK)
The Global X MSCI China Information Technology ETF (CHIK) turned six years old earlier this month and while this China ETF has gone overlooked for much of its time on the market, 2024 could be the year in which it gains more traction among investors.
The reasoning for pre-2024 enthusiasm for CHIK is simple. China’s technology sector is expanding as a rapid pace as the country aims to be a 5G and artificial leader. There’s also value in the group and, perhaps most importantly, many Chinese tech firms, including CHIK member firms, are aligned with Beijing’s broader policy goals.
“The most compelling opportunities, in our view, are likely to be found in companies aligned with the government’s commercial and policy objectives, including technology security and domestic decarbonization,” according to Alliance Bernstein. "We also see opportunities in industrial cyclical companies such as bus makers and forklift manufacturers that have developed compelling products with a strong international footprint. These companies straddle domestic and export markets, offering multiple avenues for success."
KraneShares CSI China Internet ETF (KWEB)
When it comes to growth stock benchmarks among China ETFs, the KraneShares CSI China Internet ETF (KWEB) is almost unrivaled. The $5.45 billion KWEB, which tracks the CSI Overseas China Internet Index, is off 11.23% year-to-date. While that’s less bad than the aforementioned MSCI China Index, the repudiation of KWEB is arguably too harsh.
That thesis could be borne out in 2024 as many market observers believe that growth stocks – KWEB’s bread and butter – are the preferred way for accessing a China rebound, not value equities. Interestingly, while KWEB holdings are growth fare, they do exhibit value traits as most trade at deep discounts relative to equivalent domestic companies.
“Firstly, policymakers are taking steps to stabilize and smooth out the slowdown. And, even as China’s expansion moderates, the growth rate is still projected to outpace that of the global economy over the next five years,” noted UBS Asset Management. “China has the potential to excel, with multiple industries and companies showing remarkable innovation and growth.”
Rayliant Quantamental China Equity ETF (RAYC)
The Rayliant Quantamental China Equity ETF (RAYC) is an actively managed China ETF that’s just days shy of its third birthday. It’s an all-cap strategy with a unique approach to unearthing opportunities among Chinese equities.
“The Rayliant Quantamental China Equity ETF is an active portfolio employing a systematic approach to harvesting behavioral alpha by exploiting mispricings among Chinese stocks traded in markets around the world,” according to the issuer.
The fund holds 95 stocks, about 57% of which hail from the financial services, industrial and technology sectors.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Todd Shriber
Todd Shriber got his start in financial markets as a reporter with Bloomberg News. Later, he became a trader at a Southern California-based long/short hedge fund where he specialized in trading sector and international ETFs leading up to and during the financial crisis. He would later become the web editor at ETF Trends. Currently, he analyzes, researches and writes on ETFs for a variety of Web-based publications and financial services firms.Shriber has been quoted in the Barron's, CNBC.com and the Wall Street Journal. His work has been published on Web sites such as Benzinga, ETF Daily News, ETF Trends, MarketWatch, Fox Business and Nasdaq.com.
Read Todd's Bio