China ETFs Tumble on Xi’s Power Play

KraneShares, iShares funds drop as government’s moves worry investors.

sumit
|
Senior ETF Analyst
|
Reviewed by: Sumit Roy
,
Edited by: Sumit Roy

China exchange-traded funds plunged on Monday as Chinese President Xi Jinping tightened his grip on power.  

The two largest China ETFs, the iShares MSCI China ETF (MCHI) and the KraneShares CSI China ETF (KWEB), tumbled 10% and 15%, respectively. Both ETFs are now trading close to all-time lows.  

 

 
 
No Resistance  

Last week’s 20th National Congress of the Chinese Communist Party ended with Xi, as expected, clinching a third-straight term—an outcome that was expected. 

Investors, however, were stunned by the extent to which Xi was able to mold China’s top decision-making body to his liking. The Politburo Standing Committee, widely regarded as the most powerful group within the Communist Party, is now made up exclusively of Xi loyalists.  

In addition to Xi, the committee has six other members, four of which are new.  

With Xi and his loyalists effectively in charge, concerns are rising that they will implement his controversial policies with little or no resistance.  

Market-Unfriendly Policies 

One worry is the continuation of the “Zero COVID” policy that has stunted China’s economic growth and led to recurring lockdowns across the country.  

Another is China’s uncompromising stance toward Taiwan, which Xi has promised will be reunified with the mainland, whether it takes military force or not.  

Xi’s crackdown on the country’s largest companies, and particularly, its tech companies, is pushing down stock prices. Since late 2020, the Chinese government, at the behest of Xi, has been curbing its tech giants. 

Until November 2020, tech companies had free rein to grow as fast and as large as they could. Things changed, beginning when the government blocked Ant Group from going public in what would have been the biggest IPO of all time. It was reported that President Xi Jinping personally scuttled the IPO in retaliation for a speech that Ant Financial founder Jack Ma made that seemed to criticize the government’s regulation of the financial industry.  

That set off a chain of further crackdowns on a range of companies from tutoring to ride-hailing to gaming.  

China analysts say Xi might be trying to reorient the Chinese economy toward more government control, a reversal of a decades-long trend in which China’s economy became more market-oriented. 

Xi has increasingly emphasized Community Party ideologies such as “common prosperity,” while attacking the “disorderly expansion of capital.” 

Nothing In His Way 
Having firmly cemented his grip at the helm of China’s government, Xi seemingly has nothing in his way. 

Investors are nervous that those goals will come at the expense of the economy, geopolitical stability and corporations.  

In a span of a year, China stocks—which are down more than 80% in many cases—have gone from growth to value. The question investors now have to answer is, are they a value trap?  

 

Follow Sumit Roy on Twitter @sumitroy2     

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.