Niche China ETFs Outperforming Giants

April 12, 2017

For investors looking for clues as to what China holds in store, Vanguard detailed four possible mid- to long-term scenarios:

  • “Smooth rebalancing” – Vanguard’s most bullish scenario. Chances of this happening: 30-40%.
  • “Hard landing” – It would involve a sharp decline in growth but “with a brighter future.” Chances of this happening, according to Vanguard: 20-30%.
  • “Japan-style stagnation” – A “persistently subdued” growth pace in the long run. Chances of this happening: 25-35%.
  • “Emerging-market-style instability” – The firm’s most bearish scenario, but also the “least likely.” Chances of this happening: 5-15%.

These are merely Vanguard’s views on China’s prospects, and should be taken as such. But if it is right, the key takeaway is there are plenty of risks associated with investing in China right now, as are opportunities and diversification benefits to owning an allocation to China. In Vanguard’s words:

“China is undergoing a remarkable transition and rebalancing from a manufacturing and export-based economy to one based more on service and consumption. This transition will not be without risk and pain. The alarming amount of leverage, growing overcapacity in certain industries, and increasing policy uncertainty amid the inevitable trend growth slowdown pose a rising macro tail risk. Although the near-term risk of a hard landing is relatively low given the government’s deep pocket of policy tools, the true risks lie in the medium to long term.”

There are some 45 China-focused ETFs on the market today, each slicing and dicing the space in its own way. For detailed information on all of these funds, check out our China ETFs channel.

Contact Cinthia Murphy at [email protected]

 

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