ETFs
Is it time for Chinese ETFs?
In recent years, investing in Chinese stocks has proven extremely difficult for bullish investors. Government policies perceived as anti-growth, repression of several sectors, strict measures linked to COVID-19 and the crisis in the real estate sector have contributed to a lull in the market.
iShares MSCI China ETF MCHI and iShares China Large Cap ETF FXIs have fallen 21.2% and 34% over the past five years. The ailing real estate sector poses the main challenge for the Chinese economy. Evergrande, previously the world’s largest real estate company, collapsed during China’s real estate market crisis.
GDP growth forecast rising
The Chinese economy is expected to grow 5% this year, after a “solid” first quarter, the International Monetary Fund announced recently, raising its previous forecast of 4.6% expansion, while expecting a slowdown in growth in the years to come.
BNP Paribas also recently expected China to meet its 5% growth target, while Goldman Sachs last month raised its 2024 forecast to 5%, from 4.8% in November. Citi also raised its own forecast to 5%, from 4.6% in March. All highlighted the strong first quarter data, cited by Reuters.
China’s exports for May beat analysts’ expectations despite trade tensions, although imports declined. Exports climbed 7.6% year-on-year in May, growing at the fastest pace since April 2023, mainly due to ease of trade and a weaker real effective exchange rate.
Easy money policy
At its latest meeting, China’s central bank left its key interest rate unchanged and continued to drain liquidity from its banking system to support a struggling economy. In February, the Chinese central bank announced that it had reduced the prime rate on its 5-year loans while leaving its 1-year rate unchanged.
Cheaper rating
ETFs like FXI,Franklin FTSE China ETF FLCH and MCHI trade at a P/E of 16.63X, 18.98X and 19.01X respectively, well below the SPDR S&P 500 ETF Trust SPY’s P/E of 31.99X.
Ongoing corporate fundraising activities
Chinese companies are taking advantage of the resurgence of equity markets to obtain financing. The use of convertible bonds has increased, providing companies with an advantageous way to raise funds without immediate stock dilution.
Chinese technology leaders like Ali Baba BABA, Tencent Holdings TCEHY, and JD.com (JD) have each announced billions in buybacks in recent months. Buybacks are a bullish catalyst for these stocks because they boost investor confidence.
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Tencent Holding Ltd. (TCEHY): Free Stock Analysis Report
SPDR S&P 500 ETF (SPY): ETF Research Reports
iShares China Large-Cap ETF (FXI): ETF Research Reports
iShares MSCI China ETF (MCHI): ETF Research Reports
Alibaba Group Holding Limited (BABA): Free Stock Analysis Report
Franklin FTSE China ETF (FLCH): ETF Research Reports