These Red Hot China ETFs Are Surging

January, 2018: That’s when Chinese stocks made their last major peak, topping out at 3,559 on the Shanghai Composite Index. The China-U.S. trade war was about to begin, and so was a precipitous slide in the Chinese stock market.

From its peak in January, the Shanghai Composite plunged more than 30% over the next 12 months, settling at a four-year low by the end of 2018.

Oh, how fast things can change. A little more than two months into the new year, and China is the hottest market in the world.

Trade War End In Sight

Year-to-date, the Shanghai Composite surged 26%, recovering a big chunk of its losses from last year thanks to growing hopes that the China-U.S. trade war is coming to an end.

The U.S. has made “substantial progress” in trade talks with China, President Trump recently said, adding that an agreement could be signed as soon as this month.

If a trade deal is struck, that would be a huge win for China’s economy, which was buckling under the weight of U.S. tariffs.

More Room To Run?

To be sure, the world’s second-largest economy still faces many head winds, such as rising debt levels and unfavorable demographics. The government anticipates GDP growth will slow to 6-6.5% in 2019 from 6.6% last year. But compared with some of the dire scenarios that could have unfolded if the China-U.S. trade war escalated, that is a downright rosy outlook.

It’s also good news for Chinese stocks, which could keep rallying even after the sizzling gains already seen so far this year. Analysts ETF.com spoke with suggested that China ETFs could revisit their highs from last year, or move even higher if the stimulus measures announced this week—tax cuts and increased government spending—push growth toward the upper end of the target range.

In other words, it may not be too late to buy China ETFs. Here’s a rundown of some of the options available for investors, as well top performers and asset gatherers.

Top-Performing China ETFs Of The Year

Note: Data measures total returns for the year-to-date period through March 5.

Pick Your Exposure

The top China ETFs by assets offer a diverse range of exposures. The $6.4 billion iShares China Large-Cap ETF (FXI) doesn’t hold mainland China stocks. Instead, it consists of a basket of the 50 largest and most liquid Chinese stocks trading on the Hong Kong Stock Exchange.

These so-called H-shares have done well, rising 15.1% year-to-date, but not nearly as well as mainland stocks.

In contrast to FXI’s highly concentrated, offshore portfolio, the fourth-largest China ETF, the $1.6 billion Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR), holds a broad basket of China shares trading on the mainland.

The A-shares basket has rocketed higher this year, rising 30.7%, double the return for FXI.

Other large China ETFs are treading in the middle ground between FXI and ASHR. The $4.4 billion iShares MSCI China ETF (MCHI) provides broad access to U.S.-listed China stocks, H-shares and some A-shares.

Meanwhile, the $1.4 billion SPDR S&P China ETF (GXC) does the same, but minus the A-shares. Both funds are up about 19.5% this year.

Niche ETFs

Broad China ETFs aren’t the only funds targeting the country that investors are fond of. Some of the hottest products target certain sectors or industries within the country.

The $2 billion KraneShares CSI China Internet ETF (KWEB), the $542 million Invesco China Technology ETF (CQQQ) and the $143 million Global X MSCI China Consumer Discretionary ETF (CHIQ) are examples of these more-niche funds.

And for the truly brave investors (or speculators), a whole menu of leveraged versions of the various China ETFs are available. From the Direxion Daily FTSE China Bull 3X Shares (YINN), to the Direxion Daily CSI 300 China A Share Bull 2X Shares (CHAU) to the Direxion Daily CSI China Internet Index Bull 2X Shares (CWEB), these products promise to deliver big gains or big losses, depending on which way the Chinese markets go.

For a full list of all the available China ETFs, see ETF.com’s China channel. See below for China ETFs with the largest inflows:

Top China ETF Inflows Of The Year

Note: Data measures inflows for the year-to-date period through March 5.

Email Sumit Roy at [email protected] or follow him on Twitter sumitroy2