China ETFs to Consider After Moody's Warning

China ETFs to Consider After Moody's Warning

The rating agency cut its credit outlook on the country.

Reviewed by: Staff
Edited by: Mark Nacinovich

As the saying goes, “don’t be part of the problem, be part of the solution.”

When it comes to the historically volatile, continually evolving and currently controversial concept of investing in Chinese-domiciled securities, the problems are mounting.  

But that’s not something financial advisors and investors can control. What they can control is how they try to capitalize on whatever the geopolitical and economic saga brings in the future. And that’s where the latest headlines on China are yet another opportunity to turn other investors’ stress into your total return. 

Moody's cut China's credit outlook Monday, rattling Asian markets, which have had a rough few years, especially when compared with leading U.S. indexes like the S&P 500.

The reduction in China's outlook is not the same as a rating cut. Rather, it is a warning. Still, concerns about spiking debt levels in China and the second-largest world economy’s use of fiscal stimulus to aid both state-owned businesses and local governments are at the root of Moody’s decision.  

Chinese Real Estate

And at the center of China’s issues is an about-face in recent years in its real estate market. Just eight years ago, headlines blared about many cities the size of New York going up in short order, as migration of China’s massive rural population toward such cities picked up. But wiith the awkward events of the pandemic era, a historic level of building and now-higher interest rates, the pressure is building.  

The U.S. has a printing press. China doesn’t. That’s a big motivator for the recently announced expansion of the economic cooperative block known as BRICS, intended to rival the U.S. dollar’s dominance. Yet none of that will affect advisors and investors in Chinese equity and fixed-income ETFs as much as the actual price movement in those ETFs. 

So, this latest cautionary news on China’s debt rating is a moment of decision for those already in, or seeking contrarian opportunities in China and Southeast Asia via ETFs at a point where the news has been consistently negative. 

This type of research decision is a bread-and-butter case for’s ETF Screener tool. Simply going to the Geography section and clicking “China” reveals 55 ETFs focused on that nation. Nearly all are equity funds, but there is a pair of bond funds. There are levered and unlevered ETFs, and even inverse China ETFs for those who see recent developments from a bearish perspective. 

China ETFs 

The iShares Trust - China Large-Cap ETF (FXI) is one of the oldest Chinese exchange-traded funds and it is the largest. It is a good starting point for investors to get familiar with China's stock market, which is a mix of stocks in China and Hong Kong. FXI limits itself to stocks listed in Hong Kong.

The ProShares Short China 50 Index ETF (YXI) is essentially the opposite of FXI. The fund, which has only $8.5 million in assets, aims to do what a China bear would want. It moves opposite of that index, which includes a combination of stocks from multiple corners of the Chinese equity market. YXI is up 11% so far this year. 

The VanEck China Bond ETF (CBON) is 10 times larger than its only peer, but still amounts to only $33 million in assets. That speaks to the emerging nature of the China debt market. The question is how strong a reception will China receive as its debt needs accelerate. CBON is allocated 25% to government bonds, and 75% to Chinese corporate bonds. 

There are many ways to use ETFs to take a side, or multiple sides, in the China investment world. Choose your solution carefully. 

Rob Isbitts was an investment advisor for 27 years before selling his practice to focus on ETF research and education. He is based in Weston, Florida. Contact him at  [email protected] and follow him on LinkedIn.