Emerging markets equities and the relevant ETFs have, broadly speaking, been solid performers for most of 2016.
Making that sentiment all the more notable is that China, the largest developing economy, has been lagging its emerging peers in terms of equity performances.
Investors can gain exposure to China through the iShares China Large-Cap ETF (NYSEArca: FXI) and SPDR S&P China ETF (NYSEArca: GXC), which track Chinese companies listed on the Hong Kong stock exchange.
Yuan weakness has been a point of contention for investors considering China, but that scenario could change for the better. The Chinese currency will strengthen when the yuan enters the International Monetary Fund’s basket of reserve currencies as it joins the dollar, euro, pound and yen. With the importance of the yuan growing as an alternative to the U.S. dollar, investment flows into China could help support Chinese markets and country-specific exchange traded funds.
“Within our more cautious view on the EM space, we highlight that our EM equity strategists are relatively more comfortable with Chinese equities. Chinese equities have lagged in the initial EM rally from Q1. The policymakers there have the ability to offset external FX pressures, and the Chinese equity market is more domestic driven these days. We reiterate our preference for China within EM,” according to a JPMorgan note posted by Dimitra DeFotis of Barron’s.
China ETF traders who are wary of ongoing weakness in the Chinese markets can also look to inverse or bearish options to hedge their positions. For instance, the Direxion Daily FTSE China Bear 3X Shares (NYSEArca: YANG) takes three times the inverse or -300% daily performance of Chinese stocks. Additionally, the Direxion Daily CSI 300 China A Share Bear 1x Shares (NYSEArca: CHAD) takes the inverse exposure to Chinese A-shares.