Finding anything positive to say about China ETFs has been difficult this year. Thursday’s tumbles for the group has made the task all the more difficult. Following spikes in China’s overnight and one-week SHIBOR rates, the equivalent of the London Interbank Offered Rate (LIBOR), liquidity issues within China’s banking system came into focus.
The People’s Bank of China injected $8.2 billion into the banking system in an effort to avert a full-fledged banking crisis. However, the near-term damage may already be done. Already under pressure due to deteriorating economic news, most China ETFs can ill afford a sharp decline in banking shares because the funds hold significant stakes in those stocks. [China ETFs Fall After HSBC Trims GDP Estimate]
For example, the iShares FTSE China 25 Index Fund (NYSEArca: FXI) devotes 54.6% of its weight to financials. The SPDR S&P China ETF (NYSEArca: GXC) features a 33.7% weight to the financial services sector. Those are not the only China ETF with significant exposure to bank stocks, but it is the SHIBOR news that explains why things could go from bad to worse for these funds. [Tough June For Big China ETF]
SHIBOR also makes it easy to find one China ETF that stood tall Thursday, that being the WisdomTree China Dividend Ex-Financials Fund (NasdaqGS: CHXF). As its name implies, CHXF holds no Chinese bank stocks. Right now, that is a good thing and it explains why the ETF, which debuted last September, was only down 0.58% Thursday while FXI plunged 4.2%.
Compared to some of the larger, more established China ETFs, CHXF is diverse at the sector level. Energy leads the way at 21.7%, but there is more balance between the next four sectors – industrials, staples, telecom and materials – with weights ranging from 12.55% to 14.56%.
With no bank stocks among its 61-stock lineup, CHXF looks like one of the more alluring China ETFs at the moment. That is not saying much, though. FXI is down 16.6% in the past month, but CHXF is down 11.8%. A loss of nearly 12% is nothing to crow about and it all shows is that CHXF was less bad than FXI.