The Covid-19 virus remains an active situation in China and for some investors, assets in the world’s second-largest economy aren’t worth gambling on right now. That doesn’t mean investors should outright ignore Chinese assets.
One way to stay abreast of coronavirus happenings in China while monitoring possibly reentry into Chinese stocks is with the iShares MSCI China ETF (NASDAQ: MCHI).
On the ground, consumers can already see the negative effects of this new coronavirus risk. For example, Chinese store face disruptions with Beijing implementing a quarantine policy while suppliers are finding it harder to move products with many industries prolonging a holiday to stem the spread of the virus. There has also been a big drop in travel in and out of China
“The $5.06 billion MCHI holds almost 600 stocks, giving investors a deep bench compared to some other US-listed China ETFs,” reports Nasdaq. “Just as important are the fund’s sector allocations, which give the fund more of a growth feel and that may be more useful as markets there emerge from the coronavirus clouds. MCHI devotes almost half its combined weight to consumer discretionary and communication services names.”
Outbreak Concerns Linger
The outbreak caused the government to extend the holiday period by up to a week in places like Suzhou, postponing the return of millions of migrant workers and potentially weighing on the manufacturing sector. Suzhou is one of the world’s largest manufacturing centers where multinational companies like Johnson & Johnson have set up factories.
While there obvious headwinds facing the Chinese economy due to the “Wuhan virus,” analysts remain enthusiastic about the outlook for Chinese e-commerce and internet names. Alibaba (NYSE: BABA) has earned praise as post-virus play.
“MCHI allocates 17.12% of its weight to the “Amazon of China,” good for the third-largest weight to that stock among US-listed ETFs. JD.com (JD), another marquee Chinese e-commerce name, is also mentioned alongside Alibaba,” according to Nasdaq.
Increasing the allure of MCHI is the notion that the Chinese government will act to support the economy and financial markets.
“Beijing has endured plenty of criticism in the wake of the coronavirus, much of it deserves, but Chinese policymakers are stepping up to support the economy,” according to Nasdaq. “On Monday, the Peoples Bank of China (PBOC) cut one-year lending rates to support banks, relevant news to those considering MCHI because the fund devotes 19.12% of its weight to the financial services sector.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.