China Stocks Finally Cheap Enough to Be Tempting | ETF Trends

Following three straight years of declines, China stocks are inexpensive; that much is known. But downtrodden shares in the the country’s economy may now be cheap enough to entice professional investors.

Assuming pros embrace China equities this year, there could be positive implications for an array of ETFs, including the KraneShares MSCI All China Index ETF (KALL). The fund could be relevant to investors seeking China exposure this year. That’s because it includes both A-shares (stocks trading on mainland China), H-shares (Hong Kong-listed names) and those trading in the U.S.

It’s never a singular reason to buy or sell security, but China stocks are arguably too inexpensive to ignore. The MSCI China Index’s 60% slump over the past three years has China stocks trading at some of the most depressed valuations in recent memory.

China ETF KALL Could Be in for 2024 Rebound

Data confirms that some high-level market participants intend to boost exposure to Chinese stocks.

“Almost a third of 417 respondents to Bloomberg’s latest Markets Live Pulse survey say they will increase their China investments over the next 12 months,” according to Bloomberg.

That’s well ahead of the 19% that said the same in an August poll. It’s also far above the 20% that said they intend to pare China exposure in 2024.

And owing to the impressive 2023 showings by other large emerging markets, many pros now hold underweight allocations to China. Should stocks there show signs of life, some investors could be compelled to step into the market for size. That could potentially lift KALL holdings.

“Relative 2023 outperformance in markets like India and Brazil means allocations to China sit near decade lows, recent Goldman Sachs Group Inc. research showed,” noted Bloomberg. “Separate survey data from Bank of America Corp. showed China was also the most underweighted Asian market. That means there’s more room to increase rather than cut allocations.”

Data confirms China stocks are cheap relative to the world and other marquee emerging markets. That includes India, where equities are widely viewed as richly valued after eight consecutive winning years.

“The price-to-earnings ratio based on expected profits for Chinese companies sits below 10. That’s almost half the global average and well below the ratios commanded by Indian stocks, according to MSCI indexes,” concluded Bloomberg.

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