FXI is often criticized because it holds just 51 stocks and allocates 53% of its weight to financial services stocks, nearly five times its second-largest sector weight.
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.
“FXI is a great vehicle for investors to invest in the largest emerging market in the world. When compare to S&P500, FXI is relatively cheap. While this may imply the potential of higher return, investors need to be aware of the high volatility of Chinese markets and the risks associated. Investors should exercise caution and avoid chasing the market,” according to Seeking Alpha.
For more information on the Chinese markets, visit our China category.