The China Rebound May Be Afoot, Putting the Spotlight on This ETF

China is still contending with the COVID-19, also known as the new coronavirus, outbreak, one that has presented an obvious hurdle to emerging markets assets.

As of Feb. 17, Beijing is telling the world that more than 72,400 Chinese citizens have been infected with the respiratory illness while 1,868 have died. Finding companies, Chinese and otherwise, warning about the effects of the “Wuhan virus” on top and bottom line results is becoming increasingly easy.

MGM Resorts International (MGMrecently withdrew 2020 guidance while Chinese e-commerce giant Alibaba (BABAwasn't shy on its recent earnings conference call about saying the epidemic will hinder results. On Monday, Apple (AAPL) withdrew 2020 guidance.

“Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated,” said Apple in a statement. “As a result, we do not expect to meet the revenue guidance we provided for the March quarter due to two main factors.”

Those factors, according to the company, are constrained iPhone supply and weakening demand in China (other markets remain strong) at the hands of coronavirus epidemic. Indeed, the backdrop is challenging, but the iShares MSCI China ETF (MCHI) gained nearly 3% last week.

That exchange traded fund, which follows the MSCI China Index, could be poised for more upside as coronavirus concerns dissipate.

Mulling MCHI

The $5.06 billion MCHI holds almost 600 stocks, giving investors a deep bench compared to some other US-listed China ETFs. Just as important are the fund's sector allocations, which give the fund more of a growth feel and that may be more useful as markets there emerge from the coronavirus clouds. MCHI devotes almost half its combined weight to consumer discretionary and communication services names.

Some analysts and market observers see opportunity in Chinese internet stocks amid the coronavirus, even identifying some as beneficiaries of the epidemic.

“We think the main long-term beneficiaries of the coronavirus outbreak are Chinese Internet companies with online products and services that are not yet well penetrated, as they could see an increase in users,” said Morningstar in a recent note. “This includes companies offering online education, fresh food delivery, and office tools, which are likely to see faster adoption rates.”

One of the names Morningstar highlighted as post-virus winner among Chinese internet stocks is the aforementioned Alibaba. MCHI allocates 17.12% of its weight to the “Amazon of China,” good for the third-largest weight to that stock among US-listed ETFs. (JD), another marquee Chinese e-commerce name, is also mentioned alongside Alibaba.

“The impacts of the coronavirus outbreak on the e-commerce sector are more positive than negative in the long term, mainly due to faster penetration of online shopping into lower-tier cities and rural areas, and into groceries and fresh food, with Alibaba and the main beneficiaries,” according to Morningstar.

Bank on Beijing

Beijing has endured plenty of criticism in the wake of the coronavirus, much of it deserve, but Chinese policymakers are stepping up to support the economy. On Monday, the Peoples Bank of China (PBOC) cut one-year lending rates to support banks, relevant news to those considering MCHI because the fund devotes 19.12% of its weight to the financial services sector.

“However, with a substantial reduction in GDP growth, we expect online sales of discretionary categories and the advertising budgets of merchants to see a hit, which should materially reduce earnings for Alibaba and JD in the first quarter of 2020,” said Morningstar,

With Beijing knowing that that hit is coming and with global investors banking on Chinese GDP growth of 6% this year, expect more accommodative measures from policymakers there to ensure the economy isn't a drag on the rest of the world as 2020 unfolds.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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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, 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

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