Chinese Stimulus Spurs China ETF Spike

With China’s central bank this week aggressively pumping stimulus into its economy, ETF investors with a taste for emerging markets may want to join the ensuing rally in Chinese equities.

The $4.3 billion iShares MSCI China ETF (MCHI) spiked 7.5% in mid-day trading Tuesday on reports of China’s biggest stimulus package since the Covid pandemic.

It was a similar story across the China ETF landscape, with the $4.3 billion KraneShares CSI China Internet ETF (KWEB) jumping 8.4% Tuesday.

The $3.9 billion iShares China Large-Cap ETF (FXI) spiked 7.8%.

China’s multi-layer stimulus package, which was broader than investors and market watchers had anticipated, combines government spending and interest rate cuts designed to address the country’s deflationary trajectory.

For investors keen on diversifying beyond developed international and U.S. markets, the Chinese policies may create opportunity.

Most China ETFs have been following a similarly volatile path this year that included a peak in late May following a combination of stimulus spending, improving economic data and signs of improving trade relations with the United States.

The $1.1 billion Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR) was up 8.7% from the start of the year when it peaked on May 20, but the decline from there to Sept. 13 was a punishing 12%.

The resulting gain since the start of the year for ASHR is just 3.6%, but investors' focus will likely be on the rest of the year and beyond as China appears serious about pumping up its economy.

The big three, in terms of China ETFs are all up solidly on a year-to-date basis.

MCHI is up 14.6% this year, KWEB is up 9.8% and FXI is up 24.6%.

An Alibaba ETF on the Rise

There’s reason to be bullish here, but for those especially optimistic about China’s economic recovery there is always the GraniteShares 2X Long BABA Daily ETF (BABX), which offers two times leveraged exposure to the Alibaba Group Holding Ltd.

BABX was up nearly 14% in mid-day trading Tuesday.

Along those same lines, there is the Direxion Daily CSI China Internet Bull 2X Shares ETF (CWEB) which was up 17% in mid-day trading.

But it’s important to keep the May rally and resulting pullback in mind when it comes to China ETFs.

Maya Joelson, wealth manager and global investment strategist at Savvy Advisors in New York, warned against getting too aggressive.

“Despite China's aggressive stimulus, I still do not advise investing in China,” she said. “In August 2021, I was among the first to warn that China had become un-investable as (Chinese President Xi Jinping’s) crackdown on Alibaba and other companies belied a strategic shift from capitalism to national security.”