ETF Spotlight: MCHI Rises After China Stimulus Package
While the fund rose about 8% on Thursday, etf.com Analyst Sumit Roy is skeptical about further gains.
A stimulus package China unveiled Tuesday to rekindle its troubled economy has sent equities and exchange traded funds focused on the country soaring, including the $4.4 billion iShares MSCI China ETF (MCHI).
MCHI was trading at about $50 per share on Thursday, up more than 8.5% on the day. The fund has risen roughly 16% for the past five days, accounting for most of its 2024 gains.
Other China targeted funds have climbed similarly, with the $394 million in assets SPDR S&P China ETF (GXC) also up about 16% since last Friday.
The China central bank initiative will lower the benchmark interest rate and reduce the amount of money banks must allocate for reserves as it aims to boost lending. It will also slash the rate on current mortgages and the down payments on secondary homes, and offer about $70 billion in loans to brokers, funds and other financial services organizations to purchase Chinese equities.
A juggernaut for much of the past two decades, the Chinese economy—the world's second largest—has sagged more recently, the result of a real estate industry slump, rising debt, and declining consumer confidence. Chinese debt now totals about 300% of its gross domestic product.
The country's equity markets have followed this downward path.

MCHI's Holdings
MCHI tracks a market-cap weighted index of investable Chinese shares and stretches across all market cap sizes, although its primary holdings are in large companies. Those firms include technology giant Tencent Holdings, which accounts for more than 17% of the portfolio, and online retail behemoth Alibaba Group Holding, which comprises more than 9% of the fund. It has 2% allocations in Xiaomi Corp. and JD.com.
iShares uses a representative sampling strategy to manage the fund, reviews the index quarterly and rebalances it semi-annually. The fund debuted in March 2011 and carries a 0.59% expense ratio.
In today's Exchange Traded Fridays podcast, etf.com Analyst Sumit Roy noted that stocks have typically respond well to stimulus and monetary dovishness in the U.S., but that he was "skeptical that the outlook for China's economy and earnings will shift dramatically" because of the central bank's actions this week.
"And I'm skeptical that investors are going to start paying high multiples for Chinese stocks because it's not just about the economy and earnings," he said. "You have concerns about geopolitics, you have concerns about the system of government over there as well."